Job-Loss Mortgage Insurance (Update)

By Broderick Perkins
DeadlineNews.Com For

The mortgage payment typically is the last financial obligation home owners choose to ignore when times get tough, but when joblessness hits, even paying the mortgage may not be an option.

Fortunately, there is an option to break the jobloss-foreclosure cycle -- a little-known insurance policy with benefits that can see a home owner through hard times.

With some exclusions, job loss mortgage insurance pays the mortgage payment -- including the principle, interest, taxes and insurance (PITI) -- for a predetermined period that just may be long enough to keep home ownership intact.

And in many cases it's free.

"It's not only the potential to stop defaults, a benefit to both the borrower and the lender, because it costs more to service a delinquent loan, but there's another benefit to the borrowers credit score. They won't be reported as delinquent," says John Alexander, product development manager for Jobloss Mortgage Payment Protection, Raleigh, NC-based GE Mortgage Insurance's year-old entry in the field.

Some borrowers may already have the coverage and not be aware if they didn't scrutinize their loan papers. Much of the available jobloss mortgage insurance is available at no cost from the lender as part of a loan package or program.

Lenders benefit when they package and resell their loans in a portfolio that is deemed less risky because of the guaranteed payment protection the insurance adds to the loans.

"It's a risk management and loss mitigation tool for lenders and consumers end up as collateral beneficiaries," said Teri Cooper, business development manager with Mortgage Payment Protection, Inc. (MPPI) an Orlando, FL-based company that sells jobloss mortgage protection to lenders and others.

"When loan servicers take on servicing a loan, they guarantee to the investor they will have the wherewithal to make the mortgage payment. As long as payments are made, that means money stays in circulation and that helps keep the economy afloat. Where you have high delinquency rates, those payments are being made out of the servicers' pockets. Servicers are interested in transferring that risk to us," Ms. Cooper added.

She says MPPI's business has grown by at least 100 percent in the last five years. Joining mortgage lenders offering coverage are new home builders; an ERA Realty Co. pilot program of insurance offered by real estate agents; private down-payment grant programs, including Neighborhood Gold, of Provo, Utah; and government loan programs, including some California Housing Finance Agency (CalHFA) mortgages.

Thanks to the soft economy, claims are up as well.

"We used to pay an average 2.2 months (per claim) in 1998. Now we pay an average 4.5 months," said Ms. Cooper.

MPPI has long controlled much of the market, but the niche insurance market's growth trend is giving consumers more choices, and not a minute too soon.

In September, even as unemployment dropped to 7.5 percent from August's 8 percent, Santa Clara County lost another 2,300 jobs, bringing the number of lost jobs to 39,000 since last September, according to the California Employment Development Department. The number of total jobs, 864,800, is the lowest its been since 1996 when there were 860,600 jobs.

Job losses get much of the blame for increased foreclosure activity -- up 4.5 percent in the San Francisco Bay Area since last year, according to La Jolla-based DataQuick, a real estate market data monitor.

Not everyone is sold on job loss mortgage insurance. Some real estate market experts say the increase in jobloss insurance policies portends not what is to come, but what has been.

"The rise of writing policies is actually a lagging indicator. As they are writing more policies, more things are going to improve. People taking advantage of it now, individually they may not need it," said Mike Donohoe, broker owner of Silver Creek Financial and president of the Santa Clara County Association of Realtors.

"People should have taken it out three or four years ago, when they first started writing it. Then it would have been more of a benefit to the borrower -- they never think of it as a risk until it happens and then it's too late," Mr. Donohoe added.

Financial advisors say the insurance is a good deal when it's free, but when consumers have to buy their own policy, the limited payout term and dollar amounts may warrant frugality instead of buying a policy. Self-insuring by socking away a savings that amounts to six months worth of all bill payments, or at least the mortgage payment, may be a better idea.

Advisors say insurance is best purchased as protection against major financial catastrophe -- death, the loss of a home, a suit following an automobile accident.

"I really am not an advocate of this kind of insurance. It's insuring something that is not a big potential loss. You should already have three to six months of living expenses put away to cover such things," says Eric Tyson, author of "Person Finance for Dummies" (John P. Wiley, $19.99).

For spendthrifts, however, the insurance could come in handy, provided they are aware of the caveats.

Continued: Job-Loss Mortgage Insurance >>

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