December 16th, 2020
2020 has been a year of constant change and uncertainty. Despite COVID-19, its continued economic impact, and remote employees (both within your staff and among your customers), low interest rates continue to keep you busy with new loan and refinancing requests.
Collateral protection insurance has never been more important; and yet, this year has seen significant change within the marketplace. Many carriers have reduced their exposure to Mortgage Impairment/E&O and foreclosed or lender-placed properties. Others have exited the market altogether, leaving lenders forced to change at the most inconvenient time. Another company is implementing a $50 fee for every certificate as we head into the new year, adding more cost to a distressed situation.
Having said that, many great insurance carriers and companies, including Lee & Mason, remain eager to partner with you. Our goal is to protect your collateral even when your borrower fails to do so; and whenever possible, offer alternatives that reduce the time and hassle of traditional insurance monitoring and force-placed coverage.
As you plan for 2021, many folks are reviewing these coverages and asking the following questions:
What does your policy require of your staff? Does it provide minimal coverage (as outlined by your institution in your loan agreement) or does it include protection against perils like theft, flood, and earthquake; even when you don’t require your borrower to insure against them? If you service mortgages on behalf of the secondary market, what coverage is afforded to your institution and your GSE related to that servicing?
How easy is the reporting outlet and how much flexibility does it afford me when scheduling locations? In a force-placed scenario, can that company assist in the notification process to the borrower? How do they handle the other compliance components (billing, refunding, etc.) and how responsive is their service team?
For the last several years, the number of uninsured collaterals has been very low. As a result, lenders evaluated the cost of blanket versus the number of employees and hours spent processing insurance mail. There is renewed interest entering 2021 as the time concern remain and COVID’s economic pressures have led to an increasing amount of uninsured collateral. Further, by transitioning to a blanket policy, your institution avoids the need to have force-placed hazard coverage and add that expense to your loan. The customer has more funds available to repay their loan as a result.
If your institution is reviewing these policies and processes, Lee & Mason would appreciate the opportunity to review your Call Report, learn about your current process, and outline potential improvements. In the meantime, wishing you and your families happy and healthy holidays!