July 2012

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FEATURE W M insurance" but insurance to protect both buyer and lender against an economic downturn. come new regulatory scrutiny. In May, for example, New York State—long considered to be to the insurance industry what California is to auto emissions standards—held hearings into force-placed insurance following an investigation that included requiring the largest licensed force-placed insurers operating in New York to provide a detailed accounting of their expenses, claims payments, and profits. Beyond force-placed But with the new interest has insurance, homeowners have options to sign up for mortgage unemployment insurance on top of private mortgage insurance, along with the ever-present mortgage life insurance—all with the common objective of making the lender whole. Jostling for Jobs with the onset of the recession in December 2007, which has seen unemployment skyrocket. There are two ways to view ortgage unemployment in- surance gained new traction Bureau, on behalf of the Bureau of Labor Statistics, surveys about 60,000 households to determine the number of people in the household who are employed or not. The extrapolated results of the survey are used to determine the unemployment rate. When the recession began Each month, the Census unemployment: the government definition—out-of-work, available- for-work, and looking-for-work— or the (negative) change in the number of people employed. be helpful in spotting delinquen- cies before they develop. Several years ago, a major East Coast thrift/mortgage lender observed that within three months after a negative change in household employment—a statistic that has to be calculated from available in December 2007, there were 146,272,000 people employed and 7,664,000 unemployed. By December 2009, the number of people employed had dropped by 8,312,000, while the number of people counted as unemployed rose to 15,212,000, an increase of 7,548,000. The discrepancy in fluctuation rates between the two figures represents a change in the number of individuals who either weren't available or weren't look- ing for work, and the December totals closed out a year in which the U.S. hit an all-time high point for unemployment, with tal- lies from October 2009 showing 15,268,000 unemployed residents. Watching those statistics can ith the mortgage meltdown and housing crash, there has been a new interest in insurance—not your grandfather's "homeowner's ployment insurance is coverage to pay a borrower's mortgage if the borrower becomes jobless because of a layoff or firing without cause. Policies typically don't pay if the borrower quits, retires, or is fired for misconduct. Individuals who are self-em- ployed also can't collect. There's usually a 30- to 60-day government data—delinquencies in one of the counties in which it had a significant mortgage portfolio began to increase. The thrift modified its collection strategy to prioritize borrowers in the suspect county and saw its delinquency rates stabilize. Simply put, mortgage unem- controversial of the home-related insurance programs. "Most insurance companies," waiting period before the insured can collect under the policy, after which the insurance company starts sending payments directly to the mortgage company. This insurance is frequently available as a rider on homeown- er's policies, but some home- builders now offer these policies in an effort to stimulate sales. Pick Your Policy F the minimum amount required to keep the home out of foreclo- sure. Some policies are limited and pay benefits for a restricted period of time, perhaps six months. In a tight real estate market, irst, each policy is different, but they typically only pay sellers—not just home builders— might offer to pay for a year or two of this protection as a way to encourage potential buyers. Mortgage unemployment insurance is probably the least ment insurance is not really a substitute for mortgage life insur- ance since in an uncertain econ- omy, an individual is more likely to be laid off than die. Mortgage life insurance is what it sounds like: a life insurance policy designed to pay off a mortgage loan in the event the borrower dies. In insurance parlance, it is a declining term life policy. The amount of insurance drops— along with the premium—as the mortgage balance goes down. Private mortgage insurance according to the Mortgage Life Insurance trade association, "do not pay if the mortgage owner loses jobs within six months of buying a mortgage protec- tion policy. This clause is added because insurance companies do not want borrowers to sign up for a new policy if they anticipate a layoff in the com- pany (without this protection, insurance providers may incur big losses and may have to file for bankruptcy in an economic downturn. In 2008–09, several companies declared bankruptcy or received government bailout funds in order to survive)." Indeed, mortgage unemploy- falls under strict regulations that can change with the political climate and consumer economic considerations. Changes in legal requirements often affect mort- gage protection insurance. All three forms of insurance pay off a mortgage loan on behalf of a borrower who can't offer additional revenue oppor- tunities for originators, which is THE M REPORT | 27

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