Fired? Sick? Insurance will make loan payment

Nation's Housing

May 30, 2004|By KENNETH HARNEY

Some of the most powerful players in the American home mortgage market believe that they can help homebuyers keep their homes and stay out of foreclosure - even when they unexpectedly lose their jobs or get sick and can't work.

They have begun grafting onto mortgages low-cost and no-cost insurance policies that provide anywhere from six to nine months of loan payments after an involuntary job loss. In the case of one giant firm, the insurance plan will also extend to income losses caused by accidental injuries or sicknesses that render homeowners unable to perform their jobs.

MGIC Investment Corp., one of the largest mortgage insurers in the country, plans to roll out a new, $2,000-per-month maximum payment plan nationwide to its hundreds of lender partners during June, at what it insists will be zero direct or indirect cost to consumers.

Another large insurer, GE Mortgage Insurance Corp., plans to announce its own version shortly as well - with a $2,500 maximum payout for up to six months of involuntary unemployment.

Meanwhile, dozens of lenders, homebuilders and government housing agencies have begun providing a private, involuntary job-loss plan known as "mortgage guardian." That plan is run by Mortgage Payment Protection Inc. of Altamonte Springs, Fla.

The move to attach monthly-payment insurance programs onto home loans is not a case of sudden corporate charity or heartfelt compassion for the unemployed. It's a bit more complicated. When borrowers lose their jobs because of layoffs or overseas outsourcing, their mortgage defaults are financially painful for more than their families alone.

Lenders and mortgage insurers get hurt, too. When unemployment-triggered defaults extend for months and lead to foreclosure, the costs for lenders and insurers can run into the tens of thousands of dollars per home. As a result, many are now eager to provide backup payment insurance designed to keep the home-owning household afloat - and in the home - until the breadwinners find new employment.

MGIC's top corporate leadership makes no bones about its motivations in introducing its "mortgage protection plan" at no cost to borrowers, either up front or in higher monthly premium charges.

"It's a win-win" for the homeowner and for MGIC, says Patrick Sinks, executive vice president for operations. Eligible borrowers automatically are covered for up to $18,000 of principal and interest payments - nine months at a maximum of $2,000 per month - over the first five years of the mortgage, provided MGIC continues to insure the loan. The coverage extends to involuntary job losses, where the homeowner has applied for state unemployment insurance and is "actively seeking employment."

It also covers disability situations where homeowners experience illnesses or injuries that leave them unable to work. The disability has to be "attested to by the employer," and borrowers must be "under continuous care." To qualify for no-cost coverage, homebuyers must make less than a 10 percent down payment on the house, and must have at least moderately good credit profiles - FICO scores of 620 and above. Once launched nationwide, the program will be available through mortgage lenders, not directly from MGIC.

In an interview, Sinks said that his company is willing to pay premiums for insured borrowers because involuntary job losses - even in a recovering economy - are among the key reasons why homeowners go into default and foreclosure.

By providing temporary payment support, MGIC believes it can sharply reduce foreclosure claims and losses it would otherwise have to pay to lenders. In the end, the company feels it will not only come out ahead financially, but provide a valuable new benefit to the most vulnerable borrowers - people who can afford to make only a small down payment.

GE Mortgage Insurance Corp.'s plan, now in a pilot phase but expected to be rolled out nationally soon after the company becomes part of Genworth Financial, has similar goals and features.

The plan provides a full year's coverage with up to a $15,000 maximum payout. GE says the added job-loss insurance "is a product benefit and not priced separately" to the consumer. That means the company absorbs the cost through its basic mortgage insurance premium rates. After one year, borrowers who wish to extend coverage can do so separately - at their own expense - with the insurance carrier.

Mortgage Payment Protection says it already administers job-loss programs for 76 banks and mortgage companies.

If private insurers and lenders can provide coverage against most job-related foreclosure situations - and can easily pay for it themselves - "why wouldn't anyone want this sort of protection?" asks Cooper.

Good question.

Ken Harney's e-mail address is

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