Essent Guaranty Inc., the nation’s newest private mortgage insurance company, has come out with a statement that it says protects mortgage lenders from having their claims “unfairly denied for immaterial misrepresentation, underwriting errors and missing documents.”
The Radnor, Pa.-based mortgage insurance company calls this program Clarity of Coverage and it has been added as an endorsement to its master policy.
Lenders have sued private mortgage insurance companies over their rescission policies, with perhaps the most notable example of this being the suit Bank of America filed against Mortgage Guaranty Insurance Corp.
Adolfo Marzol, Essent Guaranty’s vice chairman, explained that as the company entered the market place (it got its Fannie Mae/Freddie Mac approvals in the first quarter of 2010 and started writing business in the second quarter) and talked with lenders, it found that those lenders had questions about his company’s claims practices.
Essent Guaranty’s operating principles, he said, are to be fair and consistent and transparent regarding its practices from day one.
Essent Guaranty decided the best way to explain the claims and rescissions policy was to put it into writing.
Furthermore, the company has made this binding by embedding Clarity of Coverage in the master policy it has with lenders.
Thus, the company has established for lenders some “clear and fair expectations upfront,” Marzol said.
He made it clear that Essent Guaranty is not promising lenders it would never rescind coverage.
Essent Guaranty spells out the instances when it won’t and when it will rescind coverage.
For example, it will not rescind coverage for underwriting errors or noncompliance when the borrower has made 36 months of timely payments unless there is a misrepresentation which would have rendered the loan ineligible for coverage.
The company also promised not to rescind coverage if there was a material misrepresentation, when the correct information was provided, the loan was still eligible for insurance.
Essent Guaranty will not rescind coverage when a document not material to the loan’s eligibility is missing from the file.
It also said it will not assume without credible evidence that a lender or its representative was involved in a borrower’s fraud.
For its competition, rescission policies have allowed them to manage and reduce losses related to claims.
Essent Guaranty, as a new company, has yet to see a delinquency or claim.
But what it is trying to do, Marzol said, is to document how the company will handle claims when it gets them.
Clarity of Coverage is applicable for every loan Essent Guaranty insures and for the life of that loan.
He said it does not matter whether there was delegated underwriting to the lender or the mortgage insurance firm underwrote the loan itself.
Marzol added all parties involved in the transaction, including investors, will be benefit from this set of assurances.
