TheMReport — News and strategies for the evolving mortgage marketplace.
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Feature 36 | Th e M Rep o RT Lender confidence is reinforced by AMGC's unique and innova- tive master policy, which offers true "Day 1" rescission relief. Most MI companies have GSE- approved master policies that provide rescission relief only after 36 months of timely payments. Early (12-month) relief is available on some GSE-approved master policies but only with a require- ment for independent validation, which obliges the originator to deliver documents post-close to the MI company. The Rescission Difference I t is important for lenders to understand the difference between AMGC's master policy and the standard industry GSE-approved master policies used by all MI providers in the industry, including Arch MI— specifically, the conditions under which AMGC can rescind. Rescission has been a sensitive topic for lenders since the Great Recession started, and remains a key concern that often inhibits their willingness to explore new markets. There are five general grounds for rescission in most GSE-approved MI master policies. They are borrower misrepresenta- tion, value variance, origination error, first party misrepresenta- tion, and pattern activity. • Borrower misrepresentation includes any statement by a borrower in connection with a loan that is false or misleading, for example the occupancy of the property by the borrower • Value variance is the difference in value between an origination appraisal and a properly pre- pared review appraisal that is done after the close that reveals significant difference between the value determined at origina- tion and the retrospective value determination • Origination error, or loan quality error is a mistake, oversight, or illegitimacy in the origination of a loan with respect to the underwriting, review, and approval • First-party misrepresentation includes any statement by the lender or its agents in connec- tion with a loan, whether by mistake or intention, which is false or misleading. This is dif- ferent from borrower misrepre- sentation, sometimes referred to as third-party misrepresentation. • Pattern activity includes a com- mon misrepresentation, omis- sion or data inaccuracy that is present in multiple loans and may involve multiple people Now that we have identified the grounds on which a MI com- pany can typically rescind, let's re- view the conditions under which a MI can rescind. There are five limitations that constrain a MI's company's right to rescind. • Credible evidence is observ- able or believable facts sourced from official documents and sources and/or given by a bor- rower under oath • Materiality • Causation is the extent to which the grounds for rescission cause direct harm to the insurer • Intent is the extent to which a party meant to cause the harm– i.e., not an accident or inadver- tent byproduct of another act • Duration of Liability is the time period within which rescission liability exists for an insured Now that we have an under- standing of the grounds, limita- tions, and relief periods of most GSE approved mortgage insur- ance master policies, let's review how much more powerful the AMGC master policy is, allow- ing far greater opportunities for originating loans held in portfolio to qualify more borrowers and promote homeownership growth. First, Arch MI offers the first and only master policy offering "Day 1" rescission relief through AMGC for everything except first- party misrepresentation. Second, the AMGC master po- lices has one and only one ground for rescission, in contrast to the five grounds of a GSE-approved master policy: first-party misrep- resentation. This imposes more limitations on AMGC, including the need to demonstrate cred- ible evidence and materiality that are consistent with GSE master policies, but additionally the MI Company must prove causation and intent that the originator was willful in its intent to harm. So why is this important to mortgage originators? Portfolio lending is controlled by the lending institution and, by using AMGC mortgage insurance, originators can be confident that they will be able to offer borrow- ers non-GSE programs to meet their needs, while reducing the lender's own exposure to risk of borrower default. Portfolio loans insured by AMGC allow lenders to create spe- cial programs with lower down- payment requirements that could provide opportunities for jumbo loans, expanded DTIs to accom- modate student debt burdens, and lower coverage options compared to GSE loan programs which could reduce a monthly payment. Successful portfolio lending is critical to the future of mortgage lending in a market increasingly constrained by regulation and excessive GSE Loan-Level Pricing Adjustments, and still contend- ing with the after-effects of the Great Recession. In turn, portfolio lending depends on the confidence of the lender–confidence reflected in the development of new loan programs tailored to unique bor- rower needs and the willingness to hold those loans on balance sheets. AMGC supplies that confidence. Arch MI created AMGC's non- GSE master policy with the goal of delivering unique, innovative MI solutions to loan originators try- ing to expand into new markets, develop a wider range of mortgage products, and generate attractive, safe returns for their investors. There is simply no more certain and no more powerful coverage available to protect and support portfolio lending. JiM JuMpe is VP of marketing and product development at Arch MI. portfolio lending is controlled by the lending institution and, by using AMGC mortgage insurance, originators can be confident they will be able to offer borrowers non-GSe programs to meet their needs.