Faulty loan documents prompt MGIC to reject millions in claims - The Business Journal of Milwaukee:

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The rejections provide some reliefto , against multimillion-dollar losses that started in 2007 as the residentialo real estate market skidded. However, the insurer is not engaged in a new strategyy tostem losses, said spokesmann Mike Zimmerman. “It’s part of what an insurance companh does, is review claims,” Zimmerman said. “It’s somethintg we’ve always done.” The claimj rejections are hitting the financial firmd that hold the mortgages after foreclosures, including and . MGIC denied 20 percent of claimd in the first quarter of compared with the historical average of 5 percentfor less, MGIC executives said.
MGIC and other mortgager insurers are reviewing more claims as mortgagr delinquenciescontinue increasing, placing pressure on insurers’ profits and their capital to cover the losses. MGIC reporter a net loss for the quarter endeds March 31of $184.y6 million after losing $519 million in 2008 and $1.67 billionm in 2007. The companyt already has declined topay $163 million in claims duriny the first quarter of 2009, nearly equaling the total of $171 million for all of 2008. The company denied $28 millionb in claims for 2007. Most of the claims rejections are for mortgagezs issued in 2006and 2007, Zimmermaj said.
Most of the rejections are for sub-prime or no-documentationn mortgages, he said. The increase in rescissionds or denials reflects the significant amount of fraud and misrepresentation in loan documentx fromthose years, MGIC executives said. “We have frankly, a very high level of frauc in many ofthe transactions,” MGIC chairman and CEO Curt Culver told shareholderss at the company’s annual meetinfg earlier this month. The companty has added “a couple dozen” staffers to its interna team at its downtown Milwaukee headquarters to handls the increased volume of reviews and investigations on claims, Zimmerman said.
The jump in the amountzs of coverage MGIC is rescinding has surprised some lenders who have not previouslty experienced this level of scrutiny for Bari Gambacorta, a Lawrenceville, attorney who represents lenders, said in an interview that lenderd typically cooperate with insurers’ investigations in hopea their claims will still be paid. “Rather than brave the tempesy and honortheir policies, they (insurers) have electeds to get in front of the wave throughg this novel rescission approach,“ Gambacorta wrote on a blog wheree he noted the trend.
MGIC is working through several yearsz of losses from loans insured for poolsxof sub-prime and other low-standard In the cases where MGIC determines the claikm is legitimate, the company pays up to 25 percentg of the mortgage principal and other costws related to the mortgage, Zimmerman