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Saturday, April 05, 2003

By Holden Lewis, Scripps Howard News Service

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 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 businesses.

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. Policies begin paying after a specified period of unemployment, usually 30 days.

Some policies pay only principal and interest; others also pay taxes and insurance. Generally, the policies don't pay benefits if the borrower becomes unemployed soon after getting the policy. Also, most policies aren't available to the self-employed nor to seasonal or temporary workers.

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 the company'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. You have to get a mortgage from Bank of America to get the bank's job-loss insurance, called the Borrowers Protection Plan.

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 mortgage servicers.

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.

A less-well-known insurer is Mortgage Payment Protection Inc., which sells policies through banks, credit unions, builders and real estate agents. MPPI 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 Neighborhood Gold in Orem, Utah. It offers a mortgage unemployment policy through MPPI 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 MPPI.

Another down-payment charity, Family Home Providers of Cumming, Ga., offers an alternative to mortgage unemployment insurance -- a foreclosure prevention service, the Mortgage Assistance Plan, in which experts negotiate with lenders on behalf of borrowers who are behind on payments.