Monday, May 12, 2008

PMI Gets Aggressive on Loan Modifications

Bond insurers take a bigger part in loss mitigation strategies in an effort to keep more delinquent borrowers in their homes. This makes perfect sense because insurers are the one's paying out the claims to servicers and investors. HW reports that PMI has loosened its previous restrictions on loan modifications.

The new guidelines — which apply to all delinquent loans insured by PMI — allow a servicer to modify loan terms without PMI’s prior consent, and do not allow penalty or late charges to be capitalized into what a borrower owes.

One source noted that few outside the industry understand just how large a role the MI companies play in any loss mitigation scenario. Since much of the servicer’s and investor’s ultimate loss severity totals are tied to a claims payment from the insurer, it’s the insurer’s guidelines that largely drive loss mitigation strategies offered to borrowers.

“These are huge, empowering changes,” said one executive at large servicing shop. “In the past, we were sort of stuck with whatever program was outlined in the master policy, and had to wedge that around investor negotiations.”

source: PMI Gets Aggressive on Loan Modifications

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