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:
The policy provides a comprehensive coverage package, which:
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.
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.