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

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The rejections provide some reliefto , Milwaukee, againstf multimillion-dollar losses that startes in 2007 as the residential real estate market However, the insurer is not engaged in a new strateg y to stem losses, said spokesman Mike Zimmerman. “It’ s part of what an insurance compan does, is review claims,” Zimmerman “It’s something we’ve alwayxs done.” The claim rejections are hitting the financial firms that hold the mortgageseafter foreclosures, including and .
MGIC denied 20 percent of claimss in the first quarterof 2009, compared with the historical averag e of 5 percent or less, MGIC executives MGIC and other mortgage insurers are reviewinyg more claims as mortgage delinquencies continuer increasing, placing pressure on profits and their capital to cover the MGIC reported a net loss for the quarter endedr March 31 of $184.6 million after losinv $519 million in 2008 and $1.67 billioh in 2007. The company alreadh has declined topay $163 million in claims duriny the first quarter of 2009, nearly equaling the totaol of $171 million for all of 2008. The company deniesd $28 million in claims for 2007.
Most of the claimd rejections are for mortgages issued in 2006and 2007, Zimmermabn said. Most of the rejectionz are for sub-prime or no-documentation mortgages, he said. The increase in rescissionzs or denials reflects the significant amount of fraud and misrepresentation in loan documents fromthoss years, MGIC executives said. “We have frankly, a very high level of fraus in many ofthe transactions,” MGIC chairman and CEO Curt Culveer told shareholders at the company’s annual meeting earlierf this month.
The company has added “a couplre dozen” staffers to its internal team at its downtownm Milwaukee headquarters to handle the increased volume of reviewa and investigationson claims, Zimmerman The jump in the amounts of coverage MGIC is rescindingh has surprised some lenders who have not previouslh experienced this level of scrutiny for Bari Gambacorta, a Lawrenceville, N.J., attornet who represents lenders, said in an interview that lender s typically cooperate with insurers’ investigations in hopes theidr claims will still be paid.
“Rather than brave the tempesy and honortheir policies, they have elected to get in front of the wave through this novel rescission approach,“ Gambacorta wrote on a blog where he noted the MGIC is working through severalp years of losses from loans insured for pools of sub-prime and otheer low-standard mortgages. In the casese where MGIC determines the claimis legitimate, the company pays up to 25 percentf of the mortgage principal and othe costs related to the Zimmerman said.