Mortgage Insurers Deny 20-25% of Claims: Moody's
Monolines and mortgage insurers are attempting to narrow mortgage-related losses by put-backs to originators and claims rescissions and denials, according to insurance industry commentary this week by Moody's Investors Service. Monolines insure mortgage-related bonds, while mortgage insurers back lenders against default-related losses. The extent to which these companies are exercising put-backs and rescissions indicates loss mitigation efforts are high as the industry continues to work through distressed loans. Mortgage insurance rescission rates jumped to 20-25% in recent quarters, relative to historical 7% averages. Moody's said mortgage insurers rescinded about $6bn of claims since January 2008 and could rescind another $2bn to $4bn of claims during the next few years. Moody's also found monolines established more than $4bn of credits for put-backs to mortgage originators as of Q309, largely relating to '04-'07 vintage second-lien residential mortgage-backed securitizations (RMBS). Depending on how successful these strategies are, Moody's notes monolines and mortgage insurers could encounter "meaningfully lower" losses than expected claims from "unprecedented" defaulted mortgages. But the implications for insurance policyholders vary. "For mortgage originators and other impacted mortgage insurance beneficiaries, put-backs and rescissions could represent significant contingent exposures to mortgage-related losses, with potential negative implications for their creditors," Moody's said. "However, most originators routinely set aside provisions for such exposures, although the amounts are not publicly disclosed. Additionally, we expect that protracted negotiations over the amounts could mitigate the potential impact, as we would expect many to opt for settlements rather than litigation." Write to Diana Golobay.