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“The real issue here is that some of the lenders with fraudulent or poorly documented or undocumented mortgages want to use the HARP program to relieve themselves of the risk tied to their bad lending decisions,” Mark Herr, a spokesman of New York-based AIG, said in an e-mailed statement.”

AIG Resists Concessions to Banks for Obama Refinancing Plan

By Jody Shenn, Noah Buhayar and Prashant Gopal – Nov 14, 2011 10:01 PM MT

American International Group Inc. (AIG) is holding out as rival mortgage insurers accept policy changes that support the U.S. government push to stoke refinancing among borrowers with little or no home equity.

The bailed-out insurer’s United Guaranty unit is telling lenders it’s unwilling to offer the same protections on defective loans that competitors are granting to aid the Home Affordable Refinance Program, said four people with knowledge of the discussions. MGIC Investment Corp. (MTG) and Radian Group Inc. (RDN) have said they will forfeit some rights to revoke coverage under a plan that gets borrowers into less expensive loans.

President Barack Obama has said expanding the HARP program will make cheaper credit available to more homeowners at a time when mortgage rates are near record lows. The planned changes may also limit banks’ losses on loans that Fannie Mae, Freddie Mac or insurers say were poorly underwritten.

“The real issue here is that some of the lenders with fraudulent or poorly documented or undocumented mortgages want to use the HARP program to relieve themselves of the risk tied to their bad lending decisions,” Mark Herr, a spokesman of New York-based AIG, said in an e-mailed statement.

HARP covers loans already guaranteed by government- supported Fannie Mae and Freddie Mac, which may detail adjustments to the program as soon as today. The mortgage finance companies have protection against some losses under insurance sold by firms including United Guaranty.

Obama highlighted an expansion of the program on Oct. 24, saying it can help the economy move past the worst housing slump since the 1930s without relying on an “increasingly dysfunctional Congress.”


With the U.S. Treasury Department owning most of AIG, “it’s surprising that they’d be the ones not on board,” said Cliff Rossi, executive-in-residence at the University of Maryland’s Robert H. Smith School of Business. Matt Anderson, a Treasury Department spokesman, declined to comment.

The refinancing program, which began in 2009, has reached less than one quarter of homeowners that Obama initially projected. While United Guaranty has been an “industry leader” on HARP, facilitating $3.4 billion of refinancing, it doesn’t want to be part of “a back-door bailout” of banks, Herr said.

Mortgage insurers cut claims costs by voiding policies for errors including inflated appraisals or borrower incomes. The AIG unit benefited from $584 million of denied claims and rescinded coverage in its first-lien business in the nine months through Sept. 30, according to regulatory filings. Rescissions can hurt lenders rather than Fannie Mae and Freddie Mac because originators must buy back loans when insurance is canceled.

Underwriting Mistakes

AIG’s rivals are generally agreeing, when dealing with HARP loans, to waive rights to void coverage for most types of underwriting mistakes on borrowers’ original loans, said two of the people, who declined to be identified because the talks are private. The companies may also accept limits on the vetting of the new loans, even when homeowners add closing costs to balances, they said.

Fannie Mae and Freddie Mac are willing to have less power to force home-loan repurchases in an effort to aid housing through HARP as lenders also offer concessions, said Joe Pigg, vice president for the American Bankers Association.

“Everybody is being asked to do their part, so it seems to me the mortgage insurance companies need to step up and do their part,” Pigg said in a telephone interview. “If they don’t, that will be an inhibiting factor, hurting borrowers.”

$87.5 Billion

United Guaranty provides insurance on about $88 billion of Fannie Mae and Freddie Mac loans, the fourth-most, according to securities filings. It was the largest mortgage insurer by policy sales last quarter, followed by Radian and MGIC, according to newsletter Inside Mortgage Finance.

Under their government charters, Fannie Mae and Freddie Mac normally must have borrowers buy mortgage insurance if they take out loans exceeding 80 percent of a home’s value. HARP waives the requirement when refinancing loans that didn’t need insurance at origination. The program also can allow existing coverage to roll over at the same cost when borrowers replace their debt and insurers agree.

About 900,000 loans have been refinanced under HARP, according to the Federal Housing Finance Agency, the independent regulator of Fannie Mae and Freddie Mac that says the volume may double by the end of 2013. Obama said the program would aid 4 million to 5 million as the initiative was introduced.

FHFA Acting Director Edward DeMarco told reporters last month that Fannie Mae and Freddie Mac would offer “substantial” relief from buyback demands when HARP is used, without providing “absolute” waivers, citing instances of fraud as an exception. Corinne Russell, an FHFA spokeswoman, declined to comment.


Allowing banks to use HARP to lessen repurchase risk tied to so-called representations and warranties on previously issued mortgages may help fuel refinancing by pushing lenders to prioritize the program, Sandipan Deb, an analyst at Barclays Capital, said in an Oct. 24 interview.

“Typically, such defects show up in the first few years of a mortgage and so the value of the reps and warrants decline over time,” the FHFA said in a document on its website. “By refinancing into a lower interest rate and/or shorter term mortgage, these borrowers are recommitting to their mortgage and strengthening their household balance sheet.”

‘Good for Everybody’

MGIC is ready to accept lessened rights to rescind policies since “it’s good for everybody because it puts the borrower in a better position to service their debt,” said Mike Zimmerman, its investor-relations head. Milwaukee, Wisconsin-based MGIC’s mortgage-insurance unit has the most Fannie Mae and Freddie Mac policies outstanding.

MGIC, which plans to “line up” with the two companies’ repurchase procedures, also will drop a fee of 0.5 percentage point that it has charged to allow a new lender to refinance a homeowner under HARP without taking on rescission risk stemming from the original mortgage, Zimmerman said. One reason that repurchase and rescission rights are being limited is that they have helped to “restrict” borrowers to their current lenders, David Stevens, head of the Mortgage Bankers Association, said.

Radian expects borrowers will be about 50 percent to 70 percent less likely to default after a HARP refinancing lowers their rates, said Teresa Bryce Bazemore, president of the Philadelphia-based firm’s mortgage-insurance unit.

Lessening rescission rights to help achieve that outcome is “in our best interest,” partly because Radian must set aside reserves when loans default, draining capital, even if the insurer expects to reject the claim later, she said in a telephone interview.

Fraud, Negligence

The Washington-based Mortgage Insurance Companies of America said in a statement last month that its four members planned to “relieve lending institutions of representations from the original loan files.” Members are Radian, MGIC and Old Republic International Corp. (ORI) and Genworth Financial Inc. (GNW) units.

“The MI companies waiving their reps and warranties are worried about upsetting their lender relationships,” said Herr, AIG’s spokesman. “We’re worried about assuming someone else’s fraud or negligence.”

United Guaranty’s third-quarter operating loss narrowed to $96 million from $124 million a year earlier. AIG, whose 2008 bailout after bad bets on mortgage securities reached $182.3 billion, is now 77 percent owned by the U.S., down from 92 percent before a May share sale.

Arizona Regulator

The housing crash has pressured all mortgage insurers, with PMI Group Inc., once the third-largest, having its main unit seized by Arizona regulators last month.

The state “has agreed to allow PMI to continue to fully participate in HARP and also to permit PMI to release lenders from representations and warranties on the original loan for eligible HARP refinances,” Erin Klug, a spokeswoman for its insurance department, said in an e-mail.

To contact the reporters on this story: Jody Shenn in New York at; Noah Buhayar in New York at; Prashant Gopal in New York at

To contact the editors responsible for this story: Alan Goldstein at; Dan Kraut at; Kara Wetzel at +1-212-617-5735 or

13 Responses

  1. @Pat1

    Of course I remember you! What’s missing for us to win this battle is people who will fight it for the principle of it and don’t shake and tremble at the idea of being homeless. People who realize that there is no other way but unite and fight. You’re my kind of person.

    Good thing you amended your ID. Just in case you didn’t know, the other Pat on this site has managed to rub a few people the wrong side by throwing the responsibility for the foreclosure on the homeowners and by making off the cuff, insensitive and pompous moralizing statements. He must be some kind of Bachmanite or something…

    To top it off, he pretends to be some kind of an expert but he won’t support it with any tangible proof.

  2. Enraged,

    You have a good memory 🙂 that was me..

    I could care less about the house and my legacy will be Stand up for those who won’t or can’t!

    I am now Pat1

    E.Toole thanks for you made me laugh out loud which is rare these days!

    Linda you have excellent points in your response!

  3. Refinancing mortgage bonds that have no owner…isn’t this just another form of stealing and using the auspices of the HARP program to facilitate the thievery to make it appear legitimate?

    Now, along with the business of foreclosures, which we know are illegal, the business of re-financing steps in to legitimize the mortgage fraud. I guess it’s better than losing the home, for some, if you feel you absolutely just have to feed your addiction to making payments on a phantom promissory note.

    I agree with most of what you say, Pat, but why is it that some of us still think that homeowners will be getting a “free” house, when we will only be getting what we were entitled to in the FIRST place… our homes! Our homes that were paid for right from the get go. Soooo….we are only getting what we ALREADY paid for by our signatures.

    The banks would STILL be getting off easy even if they released every single homeowner from their alleged contractual obligation….because they collected all those down payments and years of fees, YSPs, and interest payments!!! Not to mention they used us to borrow 9 times from the Fed Res. They STOLE our identities….yet we somehow think it’s the right thing to do to make a deal with them, when they are not even offering deals! Let’s make a deal with the devil, huh?

    We really have been nice to these pretender lenders. And, I think, we were taught that if you be nice you will get nice in return. SORRY to announce that life does not work that way. The pretenders take advantage of our good hearts along with our good credit scores. As we feel “morally obligated” to make payments (on homes that are paid in full and on loans that do not exist), it is beyond our comprehension to break a “contractual obligation.” Yet banks do it all the time.

    Yet, more than half of us would leave our spouse if we found they were cheating on us, right? We would divorce by using the legal system to dissolve the contractual obligation. Maybe this is not the best analogy, but you get the idea.

    We should all be OUTRAGED.

    I ask, “Is there something wrong with keeping what you already own? Of the bank letting go of what was robbed from you in the first place?”

    “Is there something wrong about banks being honest with the public… and about them doing business dealings in the light of day?”

  4. @Pat

    A friendly piece of advice: would you consider putting a number after your name, so that you don’t get confused with the other Pat?

    I remember you! We talked a while back. You’ve got kids, right? and we discussed that house mess having become a matter of principle, to show our kids that we would fight to the end. The only legacy we will leave behind…

  5. @ Pat, glad you referenced the fact that you’re a different Pat. I was sharpening my slingblade just now, and would hate to have to apologize after the bloody fact.

    @cubed2k, of course you’re right. Until we dissolve the central banks there will be nothing but more fraud and misery. We MUST take them down sooner than later. Get out to your OWS and make it happen.

  6. Enraged,

    I agree with you my 10% under todays value number may not make sense but it was just an idea a starting point.

    I am just an ordinary homeowner stuck in this mess and trying to find an answer.

    I like the idea of the money not going to the banks but to the government to pay back for all the funds that were taken ( I mean borrowed ! ) it was our money the banks and insurance companies were bailed out with!

    I know there is another Pat on this board but that is not me I have been here for four years fighting no other interest then to keep my home and get the fraud into the light.

  7. Here it is————–

    “How Banks Create Money

    Banks actually create money when they lend it. Here’s how it works: Most of a bank’s loans are made to its own customers and are deposited in their checking accounts. Because the loan becomes a new deposit, just like a paycheck does, the bank once again holds a small percentage of that new amount in reserve and again lends the remainder to someone else, repeating the money-creation process many times.”

    The above is from the

    http://dallasfed dot org/ educate/everyday/ev9.html

    The Federal Reserve System of Banks————read it.

    Now do some more research on it. They don’t actually lend other people’s money, but you think they do………

  8. @Enraged and Pat—–

    Why not get to the core of the problem everywhere and reset the ability to issue money back to the government as opposed to giving it to the banks who bribe congress to keep the monetary power at the private banks——–

    Henry Ford said, “It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”


    OWL ——-you know something is wrong, but you can’t quite put your finger on it. What is wrong is what Henry Ford said.

  9. True: it is not going to end well, regardless who audits what.

    Obama’s recent attacks on China and the idea of having troups in Australia give me the cold sweats.

    We’re preparing for a war on the Oriental front. The writings are being written on the wall as we speak and it does scare me to death. Then again, death is the end road for all of us…

  10. Pat,

    That idea of “resetting” could make sense but… at 90%? Where did you get that figure from? People have lost a lot more then 10% of their assets, income, retirement pensions, etc. Generations to come have lost everything forward and they don’t even know it yet. And you want to reset to 90% of TODAY’s market value?

    What am I missing? Better yet, what are you missing?

    Resetting at 50%, maybe. Even then, in many cases, it’s still way too high. More than that? Absolutely not! Not until all the bonuses for a job well-done mismanaging our money have been paid back to taxpayers. Every time some exec, be it at banks or at Freddie and Fanny or some public servant makes a killing defrauding us is one additional lost chance to fix what was created behind our back.

    I understand AIG’s resistance to furthering the fraud at this juncture. Actually, it tends to take away some of its infamy in my eyes.

  11. I understand trying to solve the problem but an omission is still a Lie and if the borrower who is doing the refinance has no idea they are waving future rights all hell is going to break loose when they find out!

    The article said…

    Fraud, Negligence
    The Washington-based Mortgage Insurance Companies of America said in a statement last month that its four members planned to “relieve lending institutions of representations from the original loan files.” Members are Radian, MGIC and Old Republic International Corp. (ORI) and Genworth Financial Inc. (GNW) units.

    “The MI companies waiving their reps and warranties are worried about upsetting their lender relationships,” said Herr, AIG’s spokesman. “We’re worried about assuming someone else’s fraud or negligence.”

    The sad reality is we need to find a solution to this mess no doubt but relieving lending institutions of misrepresentations and fraud in original loan files is not the way to go about it . We have ordinary Americans working as loan office, title companies employees, county clerks offices employees, real estate offices, insurance companies, law firms who need to keep their jobs and have no earthy idea they are being used as pawns in this mess! These are the little guys who did not create this mess no more than any homeowner paying or not paying!

    We need a solution and the only way to do it to be fair is not to give millions a FREE house, Not to forgive the banks their misrepresentations and out right FRAUD !

    Out titles are destroyed no matter who looks the other way for fear of not getting future business.

    How about if we reset the entire market at once and for all who were affected by MERS. Reset to 90% of market value today and let the banks redo paperwork for everyone with the understanding you will be waving your rights to future litigation on previous loan. For those who can afford those payments they stay home owners for those who can’t offer a lease for 5 year equity share from the bank .There would need to be a time frame spelled out in the agreement for selling or refinancing in the future say 5years.. The financial institutions could write down these loan to market value and if then if the homeowner still was in payment difficulty the bank would write it down further and become the equity share holders for and additional 10%. This option would keep everyone in their home. keep everyone working, give the banks a forced reset, put money back in the economy, end the stress and outrage on the streets and allow for new paperwork to be signed with the disclosure of what really happened and get our market reset!

    We all have to look at real solutions now for this country. I have spent 4 years dealing with this and I am tired but we must find a way to help this come to resolution now. So many are hurting due to FRAUD let’s just fix this we can do it !

    For those that lost their home or sold by short sale because they were under water and were transferred or payments reset we need to compensate them I am not sure how but someone can figure will figure that out.

  12. So, I am I to understand the Obama administration is “guaranteeing” more bad loans via taxpayers? Or are the title companies going to be paying out judgments when the dust settles, with bad titles being transferred to unsuspecting homeowners when they find they have a bad title? Just asking who will take a hit on this.

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