Thursday, April 1, 2010

The Wheels of Justice Turn Slowly for BofA in its Lawsuit against MGIC over Rotten Reviews

We previously reported that MGIC had removed to federal court Bank of America's (technically its subsidiary Countrywide's) lawsuit against MGIC partly regarding rotten review appraisals.  We also reported our view that it was quite likely that MGIC would challenge Bank of America's ability to sue in court on the basis that the allegations in the complaint are subject to mandatory arbitration under the parties' insurance contracts.

Here's an update.  After the case landed in federal court, Bank of America filed a motion for remand -- a motion asking that the federal court judge push the case back down to the state court where Bank of America originally filed the lawsuit, in this case San Francisco Superior Court.  MGIC -- who lists no less than six attorneys on its behalf in its latest pleading -- then filed a demand for arbitration with the American Arbitration Association on February 24, 2010, seeking to have the 1,400 denied claims at issue arbitrated in private.  MGIC made the demand for arbitration under an arbitration clause in the various insurance policies it issued to Countrywide. 

The next day, MGIC filed a motion to stay the case on the basis that an arbitration is pending. The federal judge decided instead to go with BofA's idea and send the whole thing back to state court, ruling yesterday that the case should be remanded.  Undeterred by that setback, MGIC's six lawyers filed a "motion to stay remand pending appeal of order" -- in other words, MGIC is requesting that the federal judge keep the case in federal court while MGIC appeals the judge's decision to send it back to state court.

What does all this have to do with appraising?  From the glimpses I've seen, it doesn't look like the origination appraisals performed by the original appraisers for Countrywide's loans were off the mark in general or contributed materially to Countrywide's lending problems.  Countrywide's problem, like most failed lenders' problems, was a massive loan underwriting issue.  Also, from what I've seen, there are more problems with the review appraisals being used by mortgage insurers like MGIC to deny claims than with the original appraisals at issue.  I think it mainly stems from the "forensic" appraisal work for mortgage insurers being performed in a manner than induces bias and questionable quality.  Yet, the review appraisals are given more weight and more credibility by the mortgage insurer when denying a mortgage insurance claim.  This problem speaks strongly to the need for review appraiser credentialing or experience/knowledge requirements.