A lawsuit has been filed against the Federal Home Loan Mortgage Corp. and its conservator-regulator by the secondary lender’s biggest mortgage insurance counterparty. At issue is the interpretation of the maximum coverage for a pool of loans.
The lawsuit was filed in U.S. District Court for the Eastern District of Wisconsin.
In addition to Freddie Mac, the Federal Housing Finance Agency is named as a defendant.
The plaintiff, MGIC Investment Corp., said that the two companies are disputing the amount of the aggregate loss limit under certain pool insurance policies insuring Freddie that share a single aggregate loss limit.
“We believe the initial aggregate loss limit for a particular pool of loans insured under a policy decreases to correspond to the termination of coverage for that pool under that policy, while Freddie Mac believes the initial aggregate loss limit remains in effect until the last of the policies that provided coverage for any of the pools terminates,” the Milwaukee-based mortgage insurer explained.
The difference between the two companies’ interpretations is $535 million.
In addition, based on Freddie’s interpretation, losses would continue to escalate in future quarters.
For its part, MGIC said it is diligently trying to resolve the dispute out of court.
“As Freddie Mac’s largest mortgage insurance counterparty, we place the highest value on the long and fruitful relationship between our two companies,” MGIC reportedly said in a letter to the McLean, Va.-based company. “We trust our attempt to seek resolution of this dispute through litigation will not affect that relationship.
“From our perspective, we intend to conduct ‘business as usual’ on the various matters between us and hope after due reflection Freddie Mac will concur this approach makes sense.”
