B&C Servicers Learning to Manage Mortgage Insurance Coverage
As mortgage insurance coverage expands in the subprime sector, the servicers managing these loans find they have to learn to handle claims and processing for covered loans.
Murrayhill, a company that provides mortgage risk credit management services for issuers and dealers in the mortgage-backed securities sector, is helping the industry meet this challenge.
Sometimes, issuers will place lender-paid mortgage insurance on loans in a transaction and then select a servicer that may be unaware of the coverage or unfamiliar with it, especially in the subprime sector, where MI coverage was rare until recent years.
Murrayhill's proprietary risk-filtering technology helps it track MI policies on behalf of investors, so that when a loan goes bad they can make sure that a claim is filed and then monitor payment of the claim.
Murrayhill started monitoring its first subprime deal with mortgage insurance in March of 2000 and now has been monitoring quite a few subprime and prime transactions with mortgage insurance coverage.
While initially most subprime servicers were not up to speed on managing mortgage insurance claims, most big servicers now have MI departments in place, according to Murrayhill. But there are still some servicers that haven't had much exposure to mortgage insurance. "In that case, we are there to kind of help guide that servicer through developing that process," said David McDonnell, director of consulting at Murrayhill.
The goal is to get them up to speed on industry standards for servicing loans with mortgage insurance policies.
Mr. McDonnell said the firm has developed expertise in claim payment, claim tracking and other aspects needed to make sure that when mortgage insurance is placed on a transaction, it performs as expected.
"If a loan goes bad and there is a loss associated with it, we are making sure that the servicer is submitting a claim," Mr. McDonnell told MSN.
Once a claim is submitted, Murrayhill tracks the timeline for processing and paying the claim.
As concern about mortgage fraud increases, that is sometimes slowing down claims processing.
"MI companies are spending more time reviewing claims for fraud, so we are seeing that review process take a little longer," Mr. McDonnell said.
As a result, top tier servicers are learning to prepare claim packages "to 100% perfection" to avoid delays, Mr. McDonnell said. But in some cases, that isn't happening.
"That's why we are here, because we can track timing errors," he said.
Mr. McDonnell said Murrayhill can speak everyone's language - the servicer's, the investor's and the insurer's - and that helps to avoid or fix communication problems between parties on a transaction.
He credits many of the mortgage insurance firms for making claims payments easier with online tools that allow servicers to submit claims via the Internet. But he said more transparency from all parties would help improve the process further.
While Murrayhill doesn't have industrywide data, Mr. McDonnell said that information from deals the company has been hired to monitor suggests that MI coverage reduces loss severity. The average loss severity drops from 34.6% on deals without coverage to 27% on deals with coverage, he said.
Currently, Murrayhill is monitoring more than 100 transactions. Most consist of subprime loans, although by dollar volume, prime credit quality loans predominate.
In addition to deal tracking, Murrayhill also provides consulting services to issuers, investors and servicers. The consulting division evaluates servicers on policies and procedures.
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