Genworth mortgage unit settles arbitration case related to coverage on a block of loans

A Genworth Financial Inc. mortgage insurance subsidiary has settled an arbitration case, ending a nearly yearlong feud related to the insurer’s decision to rescind coverage on a block of loans. Although Genworth originally settled the arbitration case Sept. 8, the company filed the announcement of the settlement only today with the Securities and Exchange Commission in a Form 8-K. Specifics of the arbitration case and the identity of the lender weren’t released, nor would Genworth spokesman Al Orendorff provide further comment, though the company noted in its filing that the settlement resolves unpaid claims for mortgage coverage benefits on the loans. Genworth’s tiff with the unidentified lender dates to last year, when the mortgage subsidiary filed for arbitration to rescind coverage on a lender’s block of payment option adjustable-rate loans. When working with these loans, borrowers can select from an array of ways to make monthly payments. Interest rates on these mortgages tend to start off very low and then increase. As interest rates rise, borrowers must pay more, and they may end up with ballooning loan balances if they make only minimum payments. In December, Genworth’s mortgage subsidiary was able to rescind coverage on the loans. That month, it also adjusted its arbitration claim to allege that the lender had breached contractual obligations and made material misrepresentations on its underwriting practices. The lender struck back with a counterclaim that month alleging breach of contract and bad-faith denial of coverage, seeking damages and a declaration that the bulk insurance policies were in force. This month’s settlement resolves prior, pending and future unpaid claims for coverage benefits under the policies for the block of loans, as well as the lender’s bad-faith counterclaims. As part of the settlement, both the Genworth mortgage subsidiary and the lender are ending all disputes that were raised in the arbitration case. Genworth also said that after considering premiums and settlement payments, it has made an additional $65 million provision for its obligations under the settlement agreement.