What Is Blanket Mortgage Impairment Insurance

February 6th, 2021

As the COVID-19 (Coronavirus) pandemic continues to stress the economy and individual homeowners’ and renters’ budgets, lapses in insurance coverage can be a real danger. For lenders, having a portfolio property suffer an uninsured loss can be potentially devastating financially.

With Blanket Mortgage Impairment insurance (BMI), you can help prevent coverage gaps and eliminate the need to collect force-placed premiums from homeowners. Learn more about the protections BMI can provide to lenders with interest in mortgaged properties:

WHAT PROTECTIONS DOES BLANKET MORTGAGE IMPAIRMENT PROVIDE?

The policy provides a comprehensive coverage package, which:

• Insures losses to your mortgage or owner interest resulting from physical loss or damage to: mortgaged property securing your real estate loans; and foreclosed property on which title has passed to you (“OREO” properties)
• Insures your legal liability for losses due to errors and omissions in connection with a number of your real estate loan servicing

WHAT COVERAGES ARE AVAILABLE UNDER THIS POLICY?

Three coverage options are typically offered for losses to your mortgage or owner interest resulting from physical loss; or damage to property securing your real estate loans. Option MP 1 requires the most effort from your loan servicing operation with respect to tracking hazard insurance you require of the mortgagor. Option MP 3 requires the least effort. Coverages for errors and omissions in connection with your real estate loan servicing activities are the same for all options.

Option MP1 — "Checking"

• Requires that you have a system or process in place to verify the hazard insurance you require of the mortgagor is in place: at loan closing; and at least annually thereafter
• Coverage for losses under Option MP 1 is limited to 90 days from the earlier of: the date you become aware of or have actual notice that required mortgagor hazard insurance is no longer in effect; or when title to foreclosed property passes to you, the date you take title
• To protect your mortgage or owner interest in the property securing your loan, you must react before the 90-day coverage period ends to either: obtain evidence that required mortgagor hazard insurance has been reinstated or replaced; or you must obtain coverage for the property yourself

Option MP 2 — “Ex-checking”

• Requires that you have a system or process in place to verify the hazard insurance you require of the mortgagor is in place only at loan closing. You are not obligated to maintain any mortgagor hazard insurance follow-up system
• Coverage for losses under Option MP 2 remains limited to 90 days from the earlier of: the date you have actual notice that required mortgagor hazard insurance is no longer in effect; or when title to foreclosed property passes to you, the date you take title
• As with Option MP 2, you must react before the 90-day coverage period ends to protect your mortgage or owner interest in the property

Option MP 3 — “Ex-checking”

• Under Option MP 3, your mortgage interest in property remains protected — provided you have a system or process in place to verify required mortgagor hazard insurance at loan closing; with no further mortgagor hazard insurance checking requirement thereafter, nor need to react within 90 days of the date you have actual notice that required mortgagor hazard insurance is not in
• Under this option, when title to foreclosed property passes to you, coverage for losses remains limited to 90 days from the date you take title to such property.

WHY YOU SHOULD CONSIDER A MORTGAGE IMPAIRMENT POLICY FROM LEE & MASON?

You should give serious consideration to Option MP 3 if you are expending a significant amount of time, effort and expense tracking required mortgagor hazard insurance on properties securing your real estate loans and find that your staff is processing scores of insurance documents, but force-placing coverage on only a small number of properties. Although Option MP 3 carries a higher premium cost, this option allows you to simplify your loan servicing operation; and cut costs by eliminating your policy checking and force-placing activities on the majority of your real estate loans.

Provided your mortgage lending staff verifies required mortgagor hazard insurance at loan closing, your servicing staff’s only insurance-related duty is to make sure to obtain insurance for foreclosed property on which title passes to you within 90 days from the date you take title.

The scope of coverage provided under the Lloyd’s Mortgage Protection Policy is very broad and comprehensive compared to many other insurers’ mortgage errors and omissions as well as mortgage impairment policies; and provides an important reason to purchase any of the coverage options.

The most significant coverage element of the Policy is Section C, Direct Physical Loss or Damage from Balance of Perils. Section C coverage responds to loss events for which you do not require mortgagor-provided coverage. For example, if you require only basic fire and extended coverage and the mortgaged or REO property suffers a loss due to flood or collapse, your mortgage or owner interest is fully protected even though mortgagor coverage for these perils was never required or existed.

Lastly, government associations, such as Fannie Mae (FNMA) and Ginnie Mae (GNMA), require all participating lenders to carry mortgage impairment coverage on any properties that are not covered by another suitable insurance product. This helps ensure that FNMA and GNMA will not suffer any losses if one of the properties they’re backing is damaged while insurance coverage isn’t in effect.