Reinsurers brace for Pandemic-fueled spate of mortgage losses – AM Best

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With mortgage delinquency rates expected to dramatically increase due to COVID-19 pandemic-related forbearance and job loss, AM Best has explored the spillover effect into the mortgage-related activities of the reinsurance industry.

Reinsurers have been assuming incrementally more U.S. mortgage risk from two main sources: Fannie Mae and Freddie Mac (i.e., the government-sponsored enterprises [GSEs]); and private mortgage insurers. In recent weeks since the start of the outbreak, jobless claims have skyrocketed, resulting in the highest unemployment rate since the Great Depression. Although the CARES Act and loan forbearance, deferral and modification programs are designed to moderate the impact of the pandemic on borrowers, mortgage delinquencies nevertheless are expected to soar. Although the rate with which loans move from delinquency to claims is not clear at this point due to the unprecedented nature of the pandemic, it is inevitable that higher losses are in the cards for the GSEs and private mortgage insurers. Factors that affect the primary mortgage market also influence the broad secondary markets, such as mortgage-backed securities and mortgage reinsurance.

A new Best’s Special Report, “Mortgage Reinsurance and the COVID-19 Pandemic,” explores the dynamics of the mortgage reinsurance market and how it is affected by the fortunes of the GSEs and the private mortgage insurers.

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