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Thursday, March 11, 2010

Insurance companies not paying on bad mortgage insurance

What a great business model. Sign contracts to deliver a service and then balk when asked to follow through.
Mortgage insurers are rescinding (denying) claims, claiming themselves that the loans were fraudulent and misrepresented to them.

"The broker dealers, Bear Stearns, Countrywide even ResCap that was part of GM at the time, they used underwriting standards that were a little bit looser than what we see with the normal conforming market," says Chris Whalen of Institutional Risk Analytics. "In those cases, the default rates are in double digits and there's a lot more claims for what we call rescission or really putting back the loan to the originator by the insurer and saying, 'Hey, this loan wasn't kosher, and I shouldn't have insured it in the first place.'"

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