Mortgage policy sells in times of job uncertainty

December 01, 1991|By Jack Snyder | Jack Snyder,Orlando Sentinel

ORLANDO, Fla. -- Six years ago, Richard T. Harris was a middle-aged Pennsylvania insurance executive and very comfortable with his life.

Then his company was bought. He was fired.

"It was a total shock," Mr. Harris said.

Although he probably had more reserves than many people after years as a well-paid executive, "I was scared to death I wouldn't be able to meet my obligations, especially my mortgage payment."

His predicament led him to a new career: president of Morgard Inc., a Philadelphia company specializing in mortgage payment protection insurance.

"Having been fired, I was sensitive to the issue," Mr. Harris said during October's Mortgage Bankers Association of America convention in Dallas, where his company hawked its product in the trade show.

Mr. Harris' company is just one of several moving into mortgage payment protection insurance plans. Such programs are cropping up across the nation as builders and lenders try to allay prospective buyers' concerns about the economy.

In Maryland, for example, Michael Beccio of Beccio Homes Inc. is offering a year's worth of free unemployment insurance to homebuyers. The company builds homes in western Baltimore County, including six new homes in the Randallstown development of Kings Point at Marriottsville.

Mr. Harris obtained venture capital and spent nearly five years of research to set up the company.

Using Labor Department statistics, Mr. Harris researched the probabilities of job loss in various occupations in all areas of the country. Premiums are based on those probabilities and vary by occupation and region.

Mr. Harris said the program is targeted to occupations with the lowest unemployment risk.

"We don't expect to sell much at the higher ends of the premium ranges," he said.

If a covered homeowner loses his or her job, Morgard makes a monthly mortgage payment of up to $2,500 for one year. The policy can be renewed annually, "just like fire insurance," Mr. Harris said.

Research indicates that a homeowner who loses his or her job "can get by for a period if the biggest hurdle, the monthly mortgage payment, is taken care of," he said.

To be eligible, the participant must be between ages 21 and 59, and have been continuously employed a minimum of 30 hours a week for at least the past year.

There are few exclusions. The job loss must be involuntary. If the participant qualifies for state unemployment compensation, he or she qualifies for the Morgard insurance payment, Mr. Harris said. And a person who lost his or her job because of a crime could not collect.

In the past year, Morgard had revenue of about $2 million. In the next year, Mr. Harris is projecting $30 million in business.

"It's the product of the '90s," he said. "All over the country companies are merging and downsizing. Thousands of jobs are disappearing."

Mortgage payment protection began being used extensively in Europe about six years ago. Today, about 60 percent of all new mortgages there have payment protection plans, Mr. Harris said.

The idea of payment protection is not new. Credit-card companies have sold payment protection for years. So have car-finance companies. Many homebuyers have bought term life insurance that pays off the mortgage if the chief breadwinner dies.

The protection plan is being marketed heavily to lenders and home builders.

"The biggest reason for mortgage default is job loss, so that's the biggest concern for the lender," Mr. Harris said. "The biggest concern of the consumer is job loss."

Some builders and lenders are paying the premium for the first year or two, and using the program as a marketing tool, he said.

Plans vary across the country. Some builders are doing their own programs, assuming all the risk. Others are taking part of the risk, then buying insurance to cover the rest.

The insurance offered by Mr. Beccio's company, for example, will cover the mortgage principal, interest and escrow up to $2,500 per month. The insurance, provided through Homestead Insurance Co. of Hoboken, N.J., can be extended by homebuyers.

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