SCOTTSDALE, Ariz. - In light of the impending "recession" this year, the issues impacting the mortgage-related and subprime ABS sectors are quality control, increasing fraud in the borrowing process (such as no documentation provided for borrowers), issues of credit quality, servicing transfers, the effect of the GSEs' entry into the subprime space, job layoffs, and, perhaps most disturbing but least talked about, the risks involved with lender-paid mortgage insurance (lender-paid MI).
Especially in the subprime sector, lender-paid mortgage insurance is becoming more prevalent, according to Moody's Investors Service."There is a risk that when a claim is submitted to these insurers, depending upon what is submitted, if some things don't meet guidelines, they may not pay the full amount of the claim," said Pramila Gupta, a managing director at Moody's. "There is definite criteria for what they will or will not pay. These are still untested waters."