Reducing mortgage principal? Count MGIC out
The nation's leading private mortgage insurer, Mortgage Guaranty Insurance Corp., sent an e-mail out late Monday to mortgage default servicing clients clarifying its policies regarding distressed borrowers. The company is making it clear that in cases where mortgage servicers write off mortgage principal, "MGIC is released of its obligation to the same extent and, therefore, does not cover the portion of the released balance if the borrower re-defaults," states the e-mail. This does not include bankruptcy cases, MGIC adds, and the company may make exceptions to cover principal reductions, but mortgage servicers will require prior written approval before filing a claim. MGIC provides mortgage insurance to more than 3,300 national lenders, and its main charge is to protect mortgage investors from credit losses. The company sent the e-mail "in light of recent events including questions regarding the validity of certain foreclosure actions." Foreclosure proceedings should begin when the borrower becomes four months delinquent and documents are accurate and properly executed. Mortgage servicer "deficiencies" in foreclosure proceedings will lead MGIC to not honor a claim, any additional interest or expenses. Calls for principal reduction as a strategy to stem the rising tide of foreclosures is gaining stream. Amherst Securities senior managing director Laurie Goodman called for a mandatory principal write-down program during a HousingWire webinar. In August 2009, ACORN asked the Treasury for such a program. Other viewpoints include Freddie Mac CEO Charles E. Haldeman Jr., who suggests that payment forbearance is preferable. To file a claim with MGIC, the mortgage insurer will require complete records of all loss mitigation activity. This includes foreclosure and bankruptcy actions and evidence of title transfer, in the form of a foreclosure deed. A complete mortgage origination file is also necessary, as is a complete loan pay history from origination to claim filing. Write to Jacob Gaffney. The author holds no relevant investments.