22 Jan Blanket Mortgage Hazard vs. Blanket Mortgage Impairment – What is the Difference?
Blanket is a word commonly mentioned within collateral protection insurance but not always correctly. Specific to a portfolio of real estate loans, a Blanket policy eliminates the need for you to monitor Hazard insurance after your team has verified it at loan origination. Even if you become aware coverage has or will lapse, your institution does not have to react, notify your customer, or force-place if you employ a Blanket Mortgage policy. This policy serves as the source for your protection and recovery in the event damage occurs in the absence of primary insurance.
In addition to the insurance coverage afforded, Blanket Mortgage policies are so popular because they simplify a lender’s internal processes and eliminates their need to notify borrowers and/or incur the cost of lender-placed coverage. If you are considering a change or reviewing your current approach, it is important to remember there are two different kinds of Blanket Mortgage policies.
A Blanket Mortgage Hazard policy provides limited dual-interest coverage like a lender-placed certificate. Simply put, it addresses otherwise uninsured physical damage, and your institution can file a claim as soon as the damage has occurred. Like a lender-placed Hazard certificate, it uses Replacement Cost Valuation for most causes of loss not to exceed your financial interest (loan balance). Unlike a lender-placed certificate, however, the premium is paid for by your institution allowing you sole discretion regarding claim filing.
Blanket Mortgage Impairment coverage, on the other hand, is a single-interest policy (not unlike Lender’s Single Interest for installment loans). It protects your institution against the financial loss (impairment) that results from damage to collateral not covered by primary insurance. As a result, it requires loan default as a trigger to loss (may necessitate foreclosure depending on specific circumstance) and uses Actual Cash Valuation for claim settlement regardless of intent to repair. Due to the default requirement, partial losses and damage to properties with significant borrower equity rarely result in BMI claims and help ensure Blanket Impairment coverage is much less expensive than Blanket Hazard.
It is worth mentioning, too, that a Blanket Impairment policy affords many Errors & Omissions coverages not included in the Blanket Mortgage Hazard form. Your institution may already address this exposure but if you are comfortable with the default requirement, a Blanket Mortgage Impairment policy is an efficient, affordable way to address two coverage needs.
To discuss these differences in greater detail and determine which coverage is better to accomplish your priorities, please contact your Lee & Mason representative.