Loan Servicers Feel The Squeeze From Increased Denials Of Mortgage Insurance Claims

Housing Wire reports:

• In the face of dwindling business, with January 2010 showing fewer new policies than any month in 2009, mortgage insurance (MI) companies are increasingly denying claims for defaulted loans that allegedly do not conform to underwriting standards, increasing costs for servicers and investors.

• Historically, mortgage insurance (MI) rescission rates were low, generally around 7%, but in recent quarters, that rate has jumped to 25%, associate analyst Aleksandra Simanovsky wrote in the Moody’s Investors Service latest “ResiLandscape” commentary provided to HousingWire.

• According to Moody’s, the issue came to a head in December 2009, when Bank of America [] filed a lawsuit against MGIC [], claiming the insurer improperly denied claims from BofA’s servicer unit. While the lawsuit is still pending, mortgage insurers are becoming more confident in denying partial or whole claims from servicers and Simanovsky wrote the industry can expect continued high rescission rates for the future.

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• MI companies are taking a harder look at expenses for property preservation and utility bills and many times, servicers’ claims are denied because the MI companies claim the expenses are not “reasonable and customary.” In addition, servicers are receiving reduced reimbursements on tax and insurance advances that result from extended holding times. "As unsold home inventories continue to build and as foreclosure and REO timelines grow longer, losses to securitized trusts are expected to increase to the extent that MI companies are not covering such expenses,” Simanovsky wrote.

For more, see Growing Trend of Mortgage Insurance Claim Denials are Costing Servicers.