Mortgage Safety Net May Help More New Buyers Take the Plunge

Is there a rainy day in your personal job forecast? That wouldn't be surprising -- with unemployment rates in double digits in several states, 8.2 percent nationwide and widely expected to hit 10 percent or higher by next year.

Nor would it be surprising if uncertainty about your income is a major barrier keeping you out of the home-buying market this spring. That's why a previously obscure charitable group based in the District, the Rainy Day Foundation, suddenly is doing a booming business in what's called the mortgage payment protection niche.

According to its chief executive, Rick Del Sontro, Rainy Day is offering free job-loss protection coverage and home buyer financial counseling through approximately 100 builders and lenders across the country, plus two large real estate brokerages.

Some of the clients and partners are big: Long & Foster Real Estate is the largest independent brokerage in the country, according to industry estimates. Builder Lennar is active in 17 states including California, Florida, Arizona, the Carolinas, Illinois, and the metropolitan Washington area. Keller Williams, whose South Florida affiliate began offering coverage earlier this month, is the third-largest real estate franchise firm in the United States.

Here's how the Rainy Day plan works: People buying homes through a participating builder, lender or real estate agency can qualify for up to six months of mortgage payments -- capped at $1,800 per month in some versions and $2,500 in others -- if they lose their job during the two years following their closing. There is no direct cost to the buyer. The insurance coverage is underwritten by Virginia Surety.

Buyers can also receive pre-purchase financial education and periodic post-closing check-ins by Rainy Day counselors. Purchasers may also be eligible to receive "emergency fund" grants from Rainy Day if they encounter short-term financial drains such as unexpected medical bills.

The emergency fund, which Del Sontro estimates will pay out $8 million to homeowners in 2009 -- up from $4 million last year -- is designed to "bridge the gap" and keep full payments flowing for a month or two following an unanticipated financial problem. If the owners only have $1,000 available in a given month, but their mortgage bill is $1,500, Rainy Day contributes the missing $500.

The emergency grants are not extended to everyone who is in a jam: Rainy Day won't provide extra money when individuals have been financially reckless. Nor will it give grants in divorce or separation situations, or other problems attributable to actions by the homeowners themselves.

Lenders and builders pay $550 or more to Rainy Day for each participant in the plan. The money funds the premiums for the basic insurance coverage as well as the emergency fund.

Rainy Day is hardly the only job-loss protection program in the housing field. Mortgage payment coverage has been available through some insurance companies, lenders and mortgage brokers for years at varying costs. But with unemployment now at quarter-century highs, Del Sontro said "at this point we can't handle all the calls we're getting" from lenders, builders and consumers who want to sign up.

Toll Brothers, a publicly traded luxury builder with 250 projects in 21 states, recently began a major push with its own version of the idea, offering maximum payment coverage up to $2,500 a month for six months over a two-year period. Toll's national marketing director, Kira McCarron, said that although removing the financial fears of potential buyers "is important, we see [the mortgage protection plan] as just one tool in the toolbox" to sell new houses in 2009.

From a consumer perspective, job-loss protection -- insurance coverage worth up to $15,000 (six months times $2,500 maximum) of monthly mortgage debt -- sounds like a no-brainer.