| NovaStar v PMI
Lawsuit seeks to recover unpaid claims July 2, 2004 By PATRICK CROWLEY |
| Subprime lender NovaStar is locked in a federal court battle with mortgage insurer PMI Group over unpaid claims.In a sued filed in U.S. District Court in Topeka, Kansas, NovaStar accuses PMI of not paying about $2.5 million on 10 defaulted loans.
NovaStar, which is based is based in Kansas City and manages an $8.4 billion loan portfolio, said PMI failed to meet is obligations on mortgages it insured. “NovaStar performed its obligations under the agreements by paying the insurance premiums,” the company said in the lawsuit. “PMI has failed to make any payments to NovaStar regarding loan losses for the …loans and therefore has breached its contract.” NovaStar is seeking insurance payments on the defaulted loans and $75,000 in damages. In its response PMI, based in Walnut Creek, Calif., said it doesn’t owe any insurance payments because NovaStar made mistakes in the original loan documents. PMI alleges that NovaStar did not perform its due diligence when making the loans, including failing to fully and accurately document borrowers’ true income and employment history. NovaStar countered by saying it handled the loans properly and that PMI is obligated to pay. As of the end of the first quarter PMI had record $244 billion of insurance in force. Neither company is talking publicly. NovaStar’s lawyer Lanny Davis — who once represented former President Bill Clinton — returned one phone message but has since been unavailable. NovaStar spokesman Jeffrey Gentle told MortgageDaily.com in a brief interview that the company does not comment on pending litigation. PMI did not return phone calls to comment. But in a federal filing with the Securities and Exchange Commission NovaStar hinted at problems it might incur with insurance payments. “Mortgage insurers may not pay claims resulting in increased credit losses,” NovaStar said in a 10-K filing made late last year. “We have placed reliance on mortgage insurance to mitigate the risk of credit losses,” the company said. “However there can be no assurance that the mortgage insurers will continue to have the financial ability to pay all claims presented. “Similarly, the providers may also increase insurance premiums to a point where the cost of coverage outweighs its benefit,” NovaStar said. The case isn’t the only litigation NovaStar is currently embroiled in; the company is also named as a defendant in class action lawsuits filed on behalf of shareholders. One of the complaints alleges that “the company’s shares were artificially inflated, hitting a high of $67 per share, as the defendants continued to create the illusion that the number of NovaStar offices was increasing and record results would follow,” according to a statement issued by the law firm of Milberg Weiss — which is taking a lead role in the lawsuits. |
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Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com |
