If you are in the mortgage lending business, not only have you been dealing with all the issues related to the COVID-19 pandemic, but many of you have been dealing with record loan volumes as well. While purchases have been scattered about, borrowers looking to refinance during these historic low rates have been applying in droves. Fannie Mae recently announced they expected $1.5 trillion in refinances in 2020. This would represent a 51% increase from 2019.
How will this massive loan volume affect your loan servicing operation?
One of the challenges you will face is the tedious but necessary process of tracking the homeowners’ hazard insurance. Loan officers and operations staff will be inundated with endless paper trails and lose valuable administrative time tracking down insurance. This is a time-consuming process that can create negative customer interactions in the event force-placed insurance is issued in error. With the recent spike in loan volume, this dilemma will only get worse. In order to scale their operations to meet their increased loan servicing, many community lenders choose to explore options beyond traditional force-placed and tracking models.
Blanket Insurance Coverage
Blanket Mortgage Insurance is an option that will eliminate the vast number of hours spent by your staff members following-up and tracking insurance renewals and cancellations. This time will be better used in more productive areas such as marketing and lending. Typically, on average 97-98% of a mortgage portfolio has adequate insurance coverage. Why spend unnecessary time and effort tracking an entire portfolio for only 2-3% of uninsured loans?
The coverage provided under a Blanket Mortgage Insurance policy in many cases is identical to tracking and lender-placed programs with similar limits and exclusions. If a loss were to occur to a mortgaged property and the borrower has failed to maintain insurance coverage, the lender will be protected up to the outstanding loan balance or limit of liability on the policy. A policy can cover all real estate loans in your portfolio, including commercial loans. You can elect to cover only your second mortgages and home equity lines of credit which are the least expensive to insure.
What about Secondary Market Loans?
Many lenders utilizing a Blanket policy have secondary market loans in their portfolios. Both Fannie Mae (section B-2-03) and Freddie Mac (section 8202.8) allow for a Blanket policy to be used in the event insurance coverage is not being tracked. One of the concerns related to secondary market loans is the transferability of the Blanket protection on the loan. This same concern exists with individual hazard policies. These policies will list the initial lender as the insured and the existing insurance company is under no obligation to provide coverage to a new servicer. It is always a good practice to ask your Blanket Insurance provider for references of lenders with secondary market loans.
Compliance and Regulatory Exams
Regulatory and compliance exams will be less painful with a Blanket policy. Instead of having to spend time searching for individual loan coverages during an exam, a copy of the Blanket policy can be provided to show proof of coverage. The terms of the policy ensure the coverage is always in place which allows you to not rely on staff to adequately track the borrower’s coverage. This continuous coverage and elimination of human error make Blanket coverage a safe, sound, and compliant program.
How Much Does Blanket Coverage Cost?
The cost will vary based on several factors, including the size of the portfolio, the amount of force-placed insurance currently placed, and your past claims history. The types of loans to be covered will also affect the cost, with commercial loans being the most expensive, then first mortgages, and second mortgages and HELOCs being the least expensive. This cost is comparable to the expense associated with hiring new employees to perform this task.
Moving Forward
As we move forward through this historic loan volume, we should all challenge ourselves and our operations to find efficiencies that will provide the appropriate risk management while allowing us to be nimble and quick. Blanket Insurance is a portfolio protection solution that has gained popularity in recent years that can do just that. If you have not explored all the benefits related to this type of program, now might be the best time.
Did you know that Unitas Financial Services offers Mortgage Settlement Solutions to help streamline your origination process?
Want to learn more about Blanket Mortgage Insurance Protection for lenders and loan servicers? Download our Guide to Blanket Mortgage Insurance.
