Mortgage Insurers Take A Cue From Health Insurers And Start Denying Claims Like Crazy

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The fact that health insurers make a lot of money by aggressively denying payouts is one of the main reasons the general public considers these companies to be lower on the moral toem pole than oil companies, or used car dealerships.

But it’s business, and denying claims is a great way to make money because the game is so assymetrical.

Sick and desperate? Have fun looking through reams of paperwork on your own to figure out why the insurance company is screwing you over.

And so it seems that other kinds of insurers are taking a cue from this behaviour.

Take the beleagured mortgage insurers, who got creamed when they were stuck backstopping a pile of subprime-backed garbage.

HousingWire: 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 Moody’s said mortgage insurers rescinded about $6bn of claims since January 2008 and could rescind another $2bn to $4bn of claims during the next few years.

According to Moody’s this new strategy could “meaningfully” reduce losses at the monolines. And to some extent, they’re probably right to get more aggressive, given the pack of lies and shoddy paperwork upon which many of these mortgage-related bonds have been built.

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