2020 Master Policy FAQ
What are the most significant changes in the Master Policy?
Although the 2020 Master Policy contains numerous enhancements, the most significant changes are related to rescission relief provisions which control when we are prohibited from rescinding coverage, what we may rescind for, and the kind of evidence required. Under the 2020 Master Policy, Arch MI may only rescind coverage for a Significant Defect. A Significant Defect means a Defect that, had the true facts been known, would render the Loan ineligible for insurance based on the eligibility criteria or underwriting requirements applicable at the time of the application for insurance. Please refer to Section 1.90 of the 2020 Master Policy for examples of Significant Defects.
The 2020 Master Policy also expands the rescission relief options available for lenders. Under the policy, Arch MI will grant rescission relief upon the earliest of: (i) satisfaction of the Thirty Six Months Test; (ii) satisfaction of the Sixty Months Test; (iii) satisfactory completion of a Quality Control Review; or (iv) the satisfactory completion of an Independent Validation. With respect to Independent Validation, rescission relief will become effective upon the completion of validation if no Significant Defects are identified, except for borrower misrepresentation and occupancy misrepresentation, which both require that the Borrower make the first twelve monthly payments on time before rescission relief applies. All rescission relief is subject to Life of Loan Exclusions which provides Arch MI the right to rescind coverage for a number of circumstances including, but not limited to the following: (i) Single Loan Fraud; (ii) Pattern Activity; and (iii) Data Inaccuracies. Life of Loan Exclusions is applicable even if the Loan was granted rescission relief; however, the exclusions do not apply to borrower misrepresentation or occupancy misrepresentation if the Borrower makes the first twelve (12) monthly payments on time. Additionally, the 2020 Master Policy introduces two Rescission Relief Alternatives, Price Adjustment and Indemnification.
Why am I receiving Master Policies for Arch Mortgage Insurance Company AND United Guaranty Residential Insurance Company?
Having the ability to utilize two Master Policies provides maximum flexibility in addressing customer needs.
What Loans are covered under the 2020 Master Policy?
All insured Loans with MI application dates on or after March 1, 2020 are covered under the new 2020 Master Policy. Loans with MI application dates prior to March 1, 2020, are covered under the 2014 Master Policy.
What levels of rescission relief are available under the 2020 Master Policy and Endorsements?
Under the 2020 Master Policy, Arch MI will grant 60-Month Rescission Relief, 36-Month Rescission Relief, and Rescission Relief upon Completion of Quality Control Review on two subject matters — Property Value and Loan Quality. If a Loan is granted rescission relief for Property Value, it means that the Origination Appraisal complies with Arch MI’s collateral eligibility requirements and that the estimated value is adequately supported. If a Loan is granted rescission relief for Loan Quality, it means that the Loan Origination File and closing package are free from Significant Defects; the lender’s credit decision was properly made; and the Loan delivered meets the criteria of the Loan originally expected. Under the Independent Validation Endorsement, Arch will grant rescission relief for Property Value and Loan Quality upon completion of validation if no Significant Defects are identified with the exception of (i) borrower misrepresentation and (ii) occupancy misrepresentation, which both require the Borrower to make twelve (12) months of timely payments before rescission relief applies.
What is 60-Month Rescission Relief?
60-Month Rescission Relief is automatically granted for Loan Quality and Property Value on all Loans insured by Arch MI under the 2020 Master Policy that passes the Sixty Months Test. Arch MI must give rescission relief on both subject matters if it is determined at sixty (60) months from the due date of the first Loan payment that (i) the Loan is not in default, or if the Loan is in default at such time, it subsequently becomes current; and (ii) payments were not made by parties associated with the Insured, Loan Originator, Servicer, or GSE Beneficiary.
What is 36-Month Rescission Relief?
36-Month Rescission Relief is automatically granted for Loan Quality and Property Value on all Loans insured by Arch MI under the 2020 Master Policy that passes the Thirty Six Months Test. Arch MI must give rescission relief on both subject matters if it is determined at thirty-six (36) months from the due date of the first Loan payment that (i) the Loan is not in default; (ii) all Loan payments were made from the borrower’s own funds; (iii) there were no more than two thirty (30) day late payments and there were no sixty (60) day late payments (servicer’s misapplication and/or non-timely application of otherwise timely Borrower payments do not count); and (iv) there were no forbearance agreements, repayment plans, or modifications of the Loan in the first thirty-six (36) months.
What is Rescission Relief upon Completion of Quality Control Review?
Arch MI will grant rescission relief upon the completion of an Arch MI Quality Control Review if no Significant Defects are identified.
What’s a major difference between rescission relief granted under the Independent Validation Endorsement versus the 2020 Master Policy?
A major difference between rescission relief granted under the Independent Validation Endorsement versus the Master Policy is the timing that rescission relief becomes effective. Under the Independent Validation Endorsement, rescission relief becomes effective upon the satisfactory completion of an Independent Validation (meaning no Significant Defects were identified) with the exception of borrower misrepresentation and occupancy misrepresentation. In order to receive rescission relief for borrower misrepresentation and occupancy misrepresentation, the Borrower must make the first twelve (12) monthly payments on time.
Rescission relief under the 2020 Master Policy becomes effective when a Loan meets the Thirty-Six Months Test, Sixty Months Test, or upon completion of a Quality Control Review if no Significant Defects are identified.
What do I need to do to get Independent Validation Rescission Relief?
Non-Delegated Loans: In practice, because Arch MI is underwriting all non-delegated Loans for mortgage insurance, it will perform an Independent Validation for Property Value on all non-delegated Loans. This means you will automatically receive rescission relief upon the completion of an Independent Validation for Property Values if no Significant Defects are identified. If you want Independent Validation Rescission Relief for Loan Quality, you will need to opt-in to the Independent Validation Endorsement and submit a closing package as required by the Independent Validation Endorsement.
Delegated Loans: If you want Independent Validation Rescission Relief for Property Value and Loan Quality, you will need to opt-in to the Independent Validation Endorsement and supply the full Loan origination file and complete closing package.
If you would like Independent Validation Rescission Relief, please contact your Arch MI Account Manager who will help you decide if this feature is right for you.
When will lenders receive confirmation that rescission relief was granted under the Independent Validation Endorsement?
No later than six months after receiving all of the required documents, Arch MI will send a notification to the Insured for each Loan advising rescission relief has been approved for the Loan.
What is Life of Loan Exclusions?
All rescission relief is subject to Life of Loan Exclusions. If a Loan is subject to a Life of Loan Exclusion rescission relief will not apply, and coverage may be rescinded even if the Loan would otherwise qualify for rescission relief. However, Life of Loan Exclusions do not apply with respect to borrower misrepresentation if (i) the Loan has been subject to a successful Quality Control Review by Arch MI and the Borrower has made the first twelve monthly payments on time; or the Quality Control Review of the Loan was successfully conducted after the Loan has seasoned at least twelve (12) months; (ii) the Thirty-Six (36) Months Test has been satisfied; or (iii) the Sixty (60) Months Test has been satisfied. The following are considered Life of Loan Exclusions:
- Single Loan Fraud. Either an adjudicated finding by a court, arbitrator, or tribunal or a finding by the Company based on clear and convincing evidence of a knowing misstatement, misrepresentation, or omission by any party in connection with the Origination or Closing of a Loan, the Loan Application, or the Insurance Application intended to: (i) defraud any party involved in the transaction; or (ii) obtain any moneys, funds, credits, assets, securities, insurance or other properties from any party involved in the transaction by means of fraudulent pretenses, representations, or promises.
This Life of Loan Exclusion shall not apply for misstatements, misrepresentations, or omissions by the Borrower if:
- the Loan has been subject to a successful Quality Control Review by the Company and the Borrower has made the First Twelve Loan Payments; or the Quality Control Review of the Loan was successfully conducted after the Loan has seasoned at least twelve (12) months, without regard to the delinquency status of the Loan prior to or at the time of such review;
- The satisfaction of the First Thirty-Six Months Test; or
- The satisfaction of the Sixty Months Test.
- Pattern Activity. Any misstatement, misrepresentation or omission by any party that is made with or without knowledge of the Insured, and that:
- Involves three or more Loans insure by the Company and Originated by the same Loan Originator; and
- Was made pursuant to a common pattern of activity in connection with the Origination, Closing or the Insurance Application, based on information in the Loan Origination File or other facts or circumstances that existed at the time that involves at least one party common to all of the Loans if the Originator is the common party, involves the same individual; or if any other party is the common party, involves the same individual or entity.
- Data Inaccuracies. Any inaccurate data submitted by or on behalf of the Loan Originator to the Company for purposes of obtaining insurance, if and to the extent such data inaccuracy:
- involves five or more Loans insured by the Company and Originated by the same Loan Originator; and
- involves the same delivery data element(s); and
- differs from the information in the Loan Origination File used as the basis of the Insurance Application; and
- the Company determines that, had it known the correct information, either: (a) the Loan would not have been eligible for insurance at the time of Origination; or (b) the Loan would have been eligible for insurance, but under different terms.
The only data inaccuracies covered by this Section are those that occur as a result of an operational or system issue involving the electronic transmission of data to the Company.
- Non-Compliance with Laws. Any non-compliance with Applicable Law to the extent such non-compliance (i) impairs the enforceability of the Loan, note, bond, instrument or other evidence of indebtedness, mortgage, deed of trust, or other similar instrument, which constitutes or is equivalent to a lien or charge on the Property; or (ii) materially increases the amount of the Insurance Benefit; or (iii) the Loan is found by a court or regulatory body to have been in violation of, or if the Company reasonably believes, based on Credible Evidence, that a violation has occurred with respect to, one or more laws or regulations relating to the insurability of the Loan.
- Not Secured by First Lien. If the Loan is not secured by a valid, enforceable First Lien against the Property.
- Unacceptable Mortgage Product. Any Loan that the Company is not permitted to insure under Applicable Law at the time the Loan was Originated.
Is there a chart that summarizes Arch MI rescission relief options at a glance?
The chart below summarizes the available rescission relief under our Delegated and Non-Delegated Programs. The chart shows the customer type (Non-Delegated or Delegated), type of rescission relief (Property Value and Loan Quality), when the rescission relief is available (60 months, 36 months, Upon Completion of Quality Control Review, and Upon Completion of Independent Validation), and what documents Arch MI must review.
|Type of Rescission Relief
|Master Policy Documents
|Upon Completion of Independent Validation (Automatic without Closing Package)
|36 Months (Automatic Without Closing Package)
|60 Months (Automatic without Closing Package)
|Upon Completion of Quality Control Review (With Closing Package)
|Upon Completion of Independent Validation (With Closing Package)
|Master Policy and Independent Validation Endorsement
|Loan Quality/Property Value
|36 Months (Automatic without Closing Package)
|Master Policy and Delegated Endorsement
|60 Months (Automatic without Closing Package)
|Upon Completion of Quality Control Review (With Closing Package)
|Upon Completion of Independent Validation (With Closing Package)
Independent Validation Endorsement
How do the normal Delegated QC reviews impact rescission relief?
Delegated files that have been subject to the post-close underwriting and granted Independent Validation Rescission Relief for Property Value will not need to be audited. Delegated files with 60-Month Rescission Relief or 36-Month Rescission Relief will require audits as currently conducted.
What is my responsibility to Arch MI when I am notified that one of my insured Loans has a Significant Defect?
The Insured must notify Arch MI in the event they become aware that an insured Loan is subject to a Significant Defect, Single Loan Fraud or Pattern Activity, or is required by the GSE or the investor to be repurchased based on a Significant Defect, Single Loan Fraud or Pattern Activity. This notification is called SELF-REPORTING and must be made within thirty (30) days of discovery by the Insured or within thirty (30) days of a required repurchase. Upon notification, Arch MI will conduct its own independent quality control review of the Loan and determine if the coverage can be retained or needs to be rescinded. If the Insured fails to disclose the Significant Defect to Arch MI in a timely manner, Arch MI has the right to cancel coverage or deny an existing or future claim request.
What happens if it is discovered that a Borrower misstated, misrepresented or omitted something material at the time of Loan Origination?
Coverage on a Loan with Borrower misrepresentation is subject to Rescission except when the Borrower misrepresentation is discovered AFTER one of the following occurs:
- Arch MI successfully completes a quality control review and the Borrower makes the first twelve (12) payments.
- Arch MI successfully completes a quality control review after the Loan is seasoned at least twelve (12) months.
- The 36-Month Test is met.
- The 60-Month Test is met.
A successful quality control review means that no Significant Defect is uncovered by Arch MI.
What is the difference between Rescission and Cancellation?
A Rescission is when Arch MI terminates coverage of a Loan and returns all premiums received on the affected Loan. Coverage is deemed to never have been in force on that Loan. Cancellation is when either Arch MI or the Insured terminates coverage. No accrued premiums are returned to the Insured.
(Credit Unions Only) How do credit unions receive rescission relief on Loans submitted under EZ App?
Loans submitted as EZ Apps will receive rescission relief for Property Value automatically upon the completion of an Independent Validation, as well as 36-Month Rescission Relief or 60-Month Rescission Relief for Loan Quality if the Loan passes either test. Additionally, if Arch MI completes a Quality Control Review of a Loan and no Significant Defects are identified, Arch MI will grant rescission relief.
Credit Unions wishing to receive Independent Validation Rescission Relief for Loan Quality will need to opt-in to the Independent Validation Endorsement and submit a standard fully documented Loan file, the closing package including evidence that all approval conditions are met, and the HUD-1.
Is there anything lenders need to do to switch Loan coverage from the old Master Policy to the new?
No. Coverage was automatically switched on March 1, 2020, for all Loans with MI Application dates on or after that date.
May I continue to use the old Master Policy after the date at which the Master Policy becomes effective?
The new 2020 Master Policy will apply to all Loans with MI application dates on or after March 1, 2020. Any Loans currently insured under the 2014 Master Policy will continue in accordance with the terms of the 2014 Master Policy.
Is Arch MI’s Rescission Relief the same as the GSEs’ Representation and Warranty Relief?
No. Arch MI provides rescission relief but not representation and warranty relief. The GSEs provide their customers representation and warranty relief on key aspects of the mortgage origination process. Fannie Mae refers to this as Day 1 Certainty, and Freddie Mac refers to it simply as representation and warranty relief. The only component of the GSEs’ representation and warranty relief programs for which Arch MI provides rescission relief is the value of the property when a valid appraisal waiver is offered and accepted by the lender. Arch MI does not provide rescission relief for any other components of the GSEs’ representation and warranty relief programs.