NEW YORK - U.S. mortgage insurers are likely to reject as much as $4 billion in claims by lenders over the next few years as they get more aggressive in pushing responsibility for bad loans to originators, Moody's Investors Service said in a report.
Facing steep losses, the insurers are increasingly confident they can hold banks accountable for the loans, James Eck and other Moody's analysts said in the report.
The insurers have already rescinded about $6 billion of claims since January, following reviews asserting lenders failed on due diligence in underwriting during the peak years of the housing boom, Moody's said. Such loans helped trigger the worst housing crisis since the 1930s, and their fallout in defaults and foreclosures persists.
Denied claims, where successful, may result in a significant transfer of losses from insurers to the banks, the report said. Many banks have already provisioned for such losses, however, limiting their exposure, it said.
Mortgage insurers guarantee portions of many loans that represent more than 80 percent of a home's value. MGIC Investment Corp (MTG.N), the largest U.S. mortgage insurer, has posted nine straight quarterly losses as defaults rose.
Government-controlled mortgage finance giants Fannie Mae (FNM.N) and Freddie Mac (FRE.P) have also increased their repurchase requests, Moody's said. Servicers of Freddie Mac funded loans bought back $2.7 billion in mortgages in the first three quarters of 2009, compared with $1.2 billion for the same period a year ago. (Editing by Padraic Cassidy) ((firstname.lastname@example.org; +1 646-223-6347; Reuters Messaging: email@example.com))