Some major players in the home mortgage market believe they can help homeowners keep their homes and stay out of foreclosure, even if the homeowners unexpectedly lose their jobs or get sick and can't work.
Some in the mortgage industry have begun grafting onto home loans low-cost or no-cost insurance policies that provide six to nine months of loan payments following an involuntary job loss. In the case of one giant firm, the insurance plan extends 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 nationwide $2,000-per-month maximum payment plan to its hundreds of lender partners in 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 soon, with a $2,500 maximum payout for up to six months of involuntary unemployment.
Meanwhile, dozens of lenders, home builders and government housing agencies have begun providing a job loss plan known as MortgageGuardian. That plan is run by Mortgage Payment Protection Inc. of Altamonte Springs, Fla.
The move to attach monthly payment insurance programs to 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.
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 homeowning 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, said Patrick Sinks, executive vice president for operations. Eligible borrowers are automatically covered for up to $18,000 of principal and interest payments -- nine months at a maximum $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, in which the homeowner has applied for state unemployment insurance and is "actively seeking employment."
It also covers situations in which 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, home buyers must make less than a 10 percent down payment on the house, and must have at least moderately good credit profiles. Once launched nationwide, the program will be available through mortgage lenders, not directly from MGIC.
In an interview, Sinks said his company is willing to pay premiums for insured borrowers because involuntary job losses, even in a recovering economy, are among the key reasons 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 out to lenders. In the end, the company feels it not only will come out ahead financially, but also will provide a valuable new benefit to the most vulnerable borrowers, people who can afford to make only a small down payment.
GE Mortgage Insurance's plan, now in a pilot phase but expected to be rolled out nationally soon after the company becomes part of Genworth Financial Inc., has similar goals and features. It provides a full year's coverage with up to a $15,000 maximum payout. GE said 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 said it already administers job-loss programs for 76 banks and mortgage companies.
"This is definitely a coming trend," said Teri Cooper, the firm's national business development director. Unexpected job losses "are absolute financial disasters for homeowners."
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?" Cooper asked.
Kenneth R. Harney's e-mail address is firstname.lastname@example.org.