One of the largest mortgage financiers of the housing bubble has sued MGIC Investment Corp. over the mortgage insurer’s denials of claims for payments on mortgages gone bad.
Countrywide Home Loans Inc. and BAC Home Loans Servicing LP filed a complaint for declaratory relief Dec. 17 in the Superior Court of California in San Francisco against Milwaukee-based Mortgage Guaranty Insurance Corp. (NYSE: MTG), MGIC disclosed Tuesday.
The complaint alleges that MGIC has denied, and continues to deny, valid mortgage insurance claims submitted by Countrywide and BAC Home Loans. The mortgage firms are seeking declaratory relief on the interpretation of the insurance policies at issue, MGIC said.
“We intend to defend MGIC against the allegations in the complaint vigorously,” MGIC said. “However, we are unable to predict the outcome of this case or its effect on us.”
MGIC has rejected hundreds of millions of dollars in claims since early 2008, contending the loan documents contained false or flimsy information.
The denials, known as rescissions, mitigated MGIC’s paid losses by approximately $390 million during the third quarter ending Sept. 30 and $839 million during the first nine months of 2009, the company said in an SEC filing. For the first nine months of 2008, the figure was $97 million.
MGIC reported a net loss of $517.8 million, or $4.17 per share, in its third quarter and $1.04 billion, or $8.39, through the first nine months of 2009.
MGIC and other mortgage insurers are reviewing more claims as mortgage delinquencies continue increasing, placing pressure on insurers’ profits and their capital to cover the losses.
Most of the claims rejections are for mortgages issued in 2006 and 2007. Most of the rejections are for sub-prime or no-documentation mortgages. The increase in rescissions or denials reflects the significant amount of fraud and misrepresentation in loan documents from those years, MGIC executives said.
Charlotte, N.C.-based Bank of America (NYSE: BAC) acquired Countrywide in July 2008 for $2.5 billion.
Shares of MGIC were down 57 cents, or 9 percent, at $5.79 in morning trading Wednesday.
http://www.bizjournals.com/milwaukee/stories/2009/12/21/daily28.html
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