Should you buy job-loss mortgage
There's nothing like signing a
mortgage to make the heart beat anxiously. You make a long-term
commitment to pay a debt, not knowing whether you'll always have
a job. What if you get laid off?
That's where job-loss mortgage insurance fits
in. A few companies offer insurance policies that pay all or part
of the monthly mortgage payment if the homeowner loses a job.
Mortgage unemployment insurance
has been around for years. For a long time, the companies that offered
it were small and didn't market aggressively to the public. That
state of affairs is changing as bigger, better-known companies move
in. Bank of America began offering mortgage unemployment insurance
last year to its borrowers. GE Casualty, an affiliate of one of
the nation's biggest mortgage insurance companies, recently began
to offer job-loss policies.
The smaller companies are still
in the game, signing up customers through other mortgage-related
How it works
Job-loss mortgage insurance policies pay all or part of a mortgage
payment if the borrower involuntarily loses a job. Some pay if the
borrower becomes disabled. Policies vary on how many mortgage payments
they will make over a certain period. Many policies will make six
months' worth of payments during a 12-month period. Policies begin
paying after a specified period of unemployment, usually 30 days.
The policies have other qualifications
and caveats. Most have maximum monthly benefits, so if you have
a $3,000 monthly mortgage payment, you might not be able to find
a policy that will pay all of it. Some pay only principal and interest;
others pay principal, interest, taxes and hazard insurance.
Generally, the policies don't pay
benefits if the borrower becomes unemployed within six months of
getting the policy. That prevents people from buying a policy when
they know they'll be laid off soon. Some policies will refund premiums
to people who lose their jobs during the six-month vesting period.
Members of labor unions should
ask whether the policies pay in the event of a strike. Some do.
Some policies pay benefits only to people collecting unemployment
benefits. Generally, the policies aren't available to the self-employed
or to seasonal or temporary workers.
Customers can renew these policies
annually or cancel coverage. In this way, these policies differ
credit insurance, a type of product that that increasingly has
come under scrutiny by opponents of predatory lending. Single-premium
policies have a one-time, upfront payment, usually financed as part
of the loan. Regulators and consumer advocates have been pressuring
lenders to stop selling single-premium credit insurance, and companies
have responded by offering policies that are renewable annually.
Financial advisers tend to question
the value of job-loss mortgage insurance, pointing out that it's
wiser to save at least six months' worth of expenses in a rainy-day
fund. It's not that simple for many first-time home buyers, who
deplete their savings to meet the down payment and closing costs.
"Typical borrowing customers
are young, when a disability or job loss are most likely to interrupt
their ability to maintain financial stability for themselves and
their families," Bank of America executive Catherine Kenworthy
said in a speech this summer. She said one-quarter of Bank of America's
mortgage customers bought job-loss coverage in the first six months
the insurance was offered.
Borrowers have several choices of coverage, and pricing
varies depending on loan size and type of coverage. Coverage kicks
in 60 days after the loan closes, and the policy will pay up to
12 payments of principal and interest.
Bank of America introduced Borrowers
Protection Plan to replace revenue from single-premium credit
life insurance, which it began phasing out last year. You have to
get a mortgage from Bank of America to get the bank's job-loss insurance.
Policies offered by GE Casualty,
on the other hand, are sold only to people who already have a mortgage.
GE's policy was introduced last month and will be sold through direct
mail solicitations from insurance agencies affiliated with participating
Customers can buy policies that
will pay half or all of the monthly mortgage payment, with a maximum
benefit payout period of six or nine months. It costs about $45
a month for coverage that will pay all of a $1,000 mortgage payment
for a maximum of six months.
GE Casualty is part of GE Insurance,
which belongs to General Electric.
Smaller companies offer coverage,
Bank of America and General Electric are heavy hitters, but they're
not the only companies in the job-loss mortgage insurance game.
Another is Mortgage Payment Protection Inc., which doesn't market
directly to consumers and instead sells policies through banks,
credit unions, builders and real estate agents.
Mortgage Payment Protection Inc.
also sells policies through the increasingly popular down payment
charities, which give down payment money to home buyers and accept
donations of identical amounts, plus administrative fees, from sellers.
One such down payment charity is
Gold, based in Orem, Utah. It offers a mortgage unemployment
policy through Mortgage
Payment Protection Inc. to all clients, free for the first year.
At closing, home buyers can pay for the second year of coverage
for $200 -- a 50 percent to 75 percent discount, says David Ahrens,
vice president of marketing for Neighborhood Gold. After the second
year, homeowners deal directly with Mortgage Payment Protection
"In the economy today, people
are somewhat concerned about taking on an investment like a mortgage,"
Ahrens says. "This (insurance) gives them peace of mind --
even if nothing does happen, they feel more comfortable knowing
that, should something happen, they'll be covered."
Another down payment charity, Family
Home Providers of Cumming, Ga., offers an alternative to mortgage
unemployment insurance -- a foreclosure prevention service called
Assistance Plan. The plan, administered by The Property Group
Inc., of Roswell, Ga., doesn't make mortgage payments. Instead,
PGI employees negotiate with lenders.
A PGI spokesman declines to provide
details because he does not want the company to be lumped in with
insurance companies, which he says consumers dislike.