For jobless, help with the mortgage

Nation's Housing

September 23, 2001|By KENNETH HARNEY

MORTGAGE borrowers who feel less secure in the wake of terrorist attacks and the rising national unemployment rate have a little-known financial tool available to them: Insurance coverage that provides up to half a year's worth of mortgage payments in the event of involuntary unemployment.

The concept works like this. For a modest charge, you, your lender, a homebuilder or home seller can purchase a policy that insulates a mortgage against tough economic times. The plan pays up to $2,500 a month to keep you current on your mortgage obligations, should you lose your job.

The source of the unemployment coverage for your mortgage can be varied and creative:

Your lender can offer it as an incentive, either at a small cost or at no charge, to win your long-term loyalty as a customer.

Homebuilders can include it free as a service with each new home they sell.

You can buy it directly yourself, either when you refinance, or as an "add-on" feature to any first mortgage or home equity loan you've closed within the previous 180 days.

The idea, known as the Mortgage Payment Protection Plan in its most widely available form, was first introduced on a limited basis early last year. Now it's available in all 48 contiguous states and the District of Columbia. The insurance underwriter for the coverage is Chicago-based Virginia Surety Co. Inc., and the developer-marketer is Mortgage Payment Protection Inc. (MPPI) of Altamonte Springs, Fla.

Unemployment climbs

With unemployment jumping from 4.5 percent to 4.9 percent last month and the economy on the downgrade, home loan coverage may now appeal to thousands of families who'd never consider it during boom times.

A typical scenario might work like this:

At the closing on your new mortgage or refinance, you pay your lender a $200 or $250 "enrollment fee," part of which represents the first-year premium for the insurance, and part of which covers the lender's administrative expenses.

Say your monthly mortgage payment is $1,500. Six months after buying your house, your employer announces a corporate restructuring that eliminates your job. Although you receive a severance package and unemployment benefits, they're not enough to pay all your family's regular bills plus the $1,500 monthly mortgage payment.

After six months out of work, you finally get a new job. For five of the six months of your unemployment, your mortgage payment has been fully covered by the insurance plan - there is an initial 30-day waiting period before the funds flow. During that period, you've had $7,500 worth of mortgage payments made on your behalf in exchange for the small upfront premium, and you've kept your credit history unblemished.

Key restrictions

As with all forms of insurance, there are key restrictions to the coverage contained in the fine print. For example, you get no protection whatsoever if your unemployment is attributable to "mandatory or voluntary retirement," quitting your job, dismissal for "willful misconduct" or criminal activities. You're also ineligible if self-employed and suffer "slow cash flow or work slowdown," or if you're laid off by your company as the result of a "normal and routine" shutdown, such as a seasonal shutdown of the business.

To qualify for benefits, you need to be:

"Gainfully employed on a regular full-time basis at least 30 hours a week" for 12 consecutive weeks preceding your date of unemployment.

At least 18 years of age but not have reached your 66th birthday.

"Not totally disabled due to sickness or accidental bodily injury."

Although some of the largest lenders in the country have begun offering payment protection coverage through select branch or regional offices, many lenders are not yet geared up to do so. In such cases, said Teri Cooper, MPPI's business development director, loan applicants can ask lenders to participate, or they can contact MPPI directly to obtain an individual policy.

For information, visit www.mortgage-payment.com or call 1-866-Jobloss.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington D.C., 20071. Or e-mail him at kenharney@aol.com.

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