March 5th, 2021
With natural disasters across the globe increasing in frequency and intensity, it’s more important than ever for lenders to have a comprehensive process in place to protect themselves against uninsured losses. In 2017 alone, insurers paid out more than $78 billion in disaster-related claims. And while this figure dropped to $52 billion in 2018, ongoing environmental issues like wildfires and windstorms could make the next decade a record-setting one when it comes to disaster-related property damages.
However, one sobering statistic that has far more impact on a mortgage lender is the amount in uninsured losses its collateral property will suffer. If an insurance policy lapses before disaster strikes, the owner may not be able to afford to rebuild on their own—forcing the lender into an expensive foreclosure of a severely damaged property. Unfortunately, many lenders simply don’t have the infrastructure to track all the mortgage property insurance documents they receive or to force-place coverage on their own.
One of the most cost- and labor-efficient ways lenders can protect their mortgage portfolio is through a product known as blanket mortgage hazard insurance. Let’s take a closer look at this policy and the types of claims it covers.
WHAT IS BLANKET MORTGAGE HAZARD INSURANCE?
Blanket mortgage hazard insurance is designed to provide broad coverage for all uninsured physical damage to a collateral property. This can include damage related to natural disasters, fires, wind damage, vandalism, and unexpected property hazards like burst pipes or electrical fires. These policies will pay out claims at replacement cost instead of actual cash value for lenders and property owners who wish to repair, providing a cost-effective solution in times of major loss. Blanket mortgage hazard insurance will pay uninsured damage claims without the need to go through the lengthy foreclosure process on the property.
By having blanket mortgage hazard insurance, you can cover your entire portfolio, including first mortgage residential and commercial mortgages, without the need to keep track of insurance cancelations. The blanket mortgage hazard policy is a particularly cost-effective solution for the coverage of second mortgages and equities. The blanket hazard policy eliminates the need to track insurance and force-place insurance on uninsured properties; and the fact that the policy will pay a damage claim without foreclosure can be particularly important for a mortgage lender in the second position.
HOW DOES THIS INSURANCE PROTECT YOUR MORTGAGE LOAN PORTFOLIO?
The increasing complexity of mortgage regulations means that originating and servicing today’s loans is an intensive commitment. A blanket mortgage hazard policy allows the lender to avoid making errors in the complicated CFPB-mandated uninsured property notice sequence. Many institutions just don’t have the staff or time to properly monitor renewals and cancellations and force-place insurance when the situation demands it.
This means it can be easy for insurance lapses to slip through the cracks, even for the most conscientious organizations. By purchasing blanket mortgage hazard insurance, you’ll be able to entirely avoid the extra work of tracking insurance, while having peace of mind that you have broad protection of your organization’s loan collateral assets and bottom line.
Blanket mortgage hazard insurance can cover residential, commercial, and mobile home loans, providing the most comprehensive coverage available to lenders of all sizes and types.
If you’ve spent the last few years being challenged by insurance tracking demands and are looking for a way to better protect your entire mortgage portfolio, seek help from Lee & Mason. We have 60 years of experience providing lenders and financial institutions with comprehensive policies that mitigate risk. Contact us today to learn more about the products we offer.