Mortgage Insurance Claims Slow as Modifications Pick-up: Clayton
Mortgage insurance claims are slowing as servicers continue to keep loans from moving into real estate owned (REO) status, according to the research firm Clayton Holdings. When a bank repossess a property after foreclosure, the loan enters into REO, and the property is then marketed for resale. According to the data, the amount of time from the filing of an insurance claim to payment increased on average by more than 50 days in Q409. Clayton analysts said mortgage insurers are spending more time reviewing individual claims and are approving more modification decisions for continued insurance coverage. Another factor, according to the report, could be extensions for servicers to file claims. Researchers found at least one major insurer is allowing servicers up to a year to file a claim – a process that previously took 60 days after transfer of title. Researchers added that some servicers have a policy of not liquidating a loan before receiving the mortgage insurance payment after a technical foreclosure. These ghost loans are often reported with ending principal balances and may inflate delinquency numbers. In some cases, even, the servicer continues to advance the interest on the ghost loans – increasing the loss severity. Modification volumes are increasing, according to the report, and so this remains a concern about how the changes to the loans will affect insurance payouts. Clayton reported only a relatively small number of claims filed to modified loans received a denial. “Several mortgage insurers have delegated authority agreements with the servicers," researchers wrote. "These agreements allow the servicer to modify a loan without prior consent from the insurer; however, the modifications must still fall within that insurer’s guidelines." Write to Jon Prior.