Practical Protection for Second Mortgages and HELOC’s06 Dec
By now you’ve likely seen it firsthand – nationally, new mortgage purchases are down year-over-year as interest rates return from historic lows and home prices continue to appreciate. For those already in their ‘forever’ home, many are seeking ways to put that growing equity to work.
As a result, many lenders are revisiting their second mortgage and home equity offerings to ensure they retain existing relationships and create new ones by meeting this need. Has this been on your radar in recent months?
For anyone originating second mortgages or home equity lines of credit, the first program that’s needed is a lien protection policy. It’s a comprehensive Errors & Omissions policy (separate from Mortgage Impairment/Mortgage Holder’s E&O policies) that protects against borrower fraud, identity theft, undisclosed liens, and any errors or omissions within the property report or recordation of documents.
Typically charged as a per origination premium, lien protection policies create peace of mind knowing you have insurance for the lien you thought you secured at origination. In the event your institution finds itself in a subordinate position (which could result from property tax liens, income tax liens, and many other scenarios), this policy addresses the amount of your financial impairment. Programs often specify limits for amount financed, loan-to value (LTV), and credit score requirements so make sure the lien protection policy aligns with your underwriting guidelines.
Another program typically employed by lenders actively expanding their 2nd/Home Equity portfolios addresses loan default. Once you’ve established your internal lending criteria, a loan default program is designed to expand those guidelines while using insurance to minimize the effect of borrower default to your institution. By widening your origination pipeline, you capture new relationships and create cross-selling opportunities to valuable, long-term clients without the traditional risk.
Loan default programs can typically include home equity loans, lines of credit, purchase money second mortgage loans, and home improvement loans (whether secured or unsecured). Knowing your current threshold and future expansion are different than your local competitors, it’s again important to that you discuss your current loan parameters, what changes allow you to meet the remaining demand, and how loan default insurance can help you safely grow that portfolio as we head into the new year.
Above all, it’s important to assess your potential opportunities, discuss the pros and cons these insurance programs can create, and ask questions throughout the entire process!
Feel free to contact your Lee & Mason representative.