Thursday, May 14, 2009

Job loss mortgage insurance

What's scarier than job loss?
The recession spawned growth in job loss mortgage insurance, but you may not have the option to get coverage that would pay your mortgage should you get a pink slip.

by Broderick Perkins
© 2008 DeadlineNews.Com
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Deadline Newsroom - A growing number of job loss mortgage protection insurance policies help take the fear out of home buying, but the coverage is not for everyone.

The not-for-everyone catch isn't necessarily because of cost, home type, or financial feasibility of such insurance -- though they are issues to consider.

For some homebuyers, the coverage simply isn't an option.

Simply put, job loss mortgage insurance pays your mortgage when you lose your job -- to a point. Paid direct to the lender, policy benefits can cover principal, interest, taxes and insurance -- or all items are included in the mortgage payment.
Shopping for job loss insurance

Consider these factors when shopping for job loss mortgage insurance.

Variations, Limits, Terms Premiums, terms, limits, benefits all vary. So shop around. Evaluate your debt and income to determine the policy that's best. Evaluate your mortgage payment to determine if a given policy will provide sufficient benefits.

Benefits aren't paid forever and they may not cover the full cost of your mortgage payment. Some policies pay for six months, some pay nine, others for 12 months. CAR limits payment to $1,500 a month, for six months, for example. And once funding is depleted the CAR policies will remain in force, but new policies won't be available.

Some policies require purchase as part of the acquisition process, other policies allow you to buy the insurance whenever, with waiting period provisions, of course.

Other policies require that you finance the cost along with the mortgage, still other policies allow you to buy coverage as a separate cost and payment.

Affiliation. Some policies require an affiliation with a lender, realty agency or other entity. Keller Williams, for example, offers its policy through the Rainy Day Foundation, which requires participation in its home ownership counseling program. New home builders sometimes require that you use their affiliate lender. CAR requires that consumers buy homes from a licensed 'Realtor'.

Waiting periods. Depending upon the insurer, potential policy holders must be employed full time or for at least 30 hours a week and for a period of time before they can obtain coverage. Once you buy coverage, there is a moratorium of a month or more before the policy kicks in. After the moratorium, the home owner typically must be out of work some time, say 30 days, before the first benefit is paid.

And now, here's the rub

Unfortunately, not everyone can buy the coverage.

"Where some of the programs fall short is most of them require you to be a W-2 wage earner, meaning self-employed individuals cannot get coverage," said Virgilio, also broker of Realty World, California Property Network.

Typically ineligible are those always on the bottom of the bailout/relief totem pole whenever it comes to special assistance -- hard working self-employed people, independent contractors, work-at-home business owners and the like. Washington has been literally mum on helping the self-employed.

Others ineligible for some or all policies include:

• The already unemployed.
• Individuals under 18 and over 60.
• Retirees at any age.
• Second home buyers
• People who work in sectors with a high rate of economic distress or existing unemployment.
• Military personnel, especially retirees.

The coverage can be a good deal if you fear job loss, if you have no other financial back-up should your employment end or if you know you later can't refinance or modify your loan out of trouble and don't want to lose your home.

"The job loss insurance is a big help for many mentally, knowing that the help is available if they should lose their jobs. And it gives comfort for some that are sitting on the fence," said Quincy A. Virgilio, Jr. president of the Santa Clara County Association of Realtors.

Today's job loss mortgage insurance has become a growth industry spawned by the recession. The idea is to incentivise home buying by adding protection against a shrinking economy. Theoretically, that will boost home sales.

Once only the product of traditional insurers, job loss mortgage protection now comes from a variety of sources.

The California Association of Realtors (CAR) became the nation's first realty association to offer a mortgage protection program. It's for first-time home buyers who lose their jobs.

"This program is a big success and all buyers who use a Realtor are eligible. All qualified first time buyers should definitely enroll in this program because the restrictions are few," said Julia Truesdale Keady, president of the Silicon Valley Association of Realtors.

Well, not quite. The program does have its limitations.

The $1 million program is only funded to assist some 3,000 homeowners, but CAR's Housing Affordability Fund Mortgage Protection Program (MPP) beats a blank for those who are lucky enough to land a policy.

MPP offers first-time home buyers who lose their jobs up to $1,500 per month, for six months, to help make their mortgage payments.

A qualified co-buyer also can participate in the program, and receive a monthly benefit of $750 per month for up to six months. Program benefits also include coverage for accidental disability and a $10,000 death benefit.

"The Mortgage Protection Program was developed to help ease the anxiety of consumers who are concerned about potential job loss and its impact on their ability to pay their mortgage should they purchase a home," said CAR President James Liptak.

To qualify applicants must:

• Be a first-time home buyer -- someone who has not owned a home in three or more years.
• Open escrow April 2, 2009, or later, and close on or before Dec. 31, 2009.
• Use a licensed California "Realtor" in the transaction.
• Purchase the property in California.
• Be a W-2 employee.

Request an application for the program from CAR.

Others offering job loss mortgage insurance include:

Insurers -- See: and Mortgage Guardian.
Home builders -- Offering policies are: Toll Brothers; Lennar; Ryland and others.
Lenders -- The Bank of America has long offered a policy that covers not only job loss, but also hospitalization, disability and death.
Realty agents -- For example, Keller Williams offers coverage through the Rainy Day Foundation.
Government housing agencies -- The California Housing Finance Agency offers HomeOpeners.

Consumer advocate Mark Eisenson isn't sold on the coverage. He says buying job loss mortgage insurance may be a sign you haven't taken care when buying a home in the first place.

"Losing a job is more than a nuisance. It can be a catastrophe. Unfortunately, job loss insurance is something you only want if you are overextending yourself by buying a house you can't really afford, at a time when you have real concerns about losing your job," said Eisenson, co-author of the new e-book Reduce Debt, Reduce Stress: Real Life Solutions for Solving Your Credit Crisis.

"I'd rather stay where I am, cut expenses, reduce debts and stress, build an emergency fund, and create a back-up source of income -- before I'd start looking for a new house," he added.

If you believe the coverage is right for you, be prepared to sift through a variety of coverages, costs, provisions and requirements.

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© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop. Perkins is also a National Real Estate Examiner. All the news that really hits home from three locations -- that's location, location, location!

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david said...

"Job loss mortgage insurance" is the best way to keep the home safe back during hard times like unemployment. Many people around the country are not running a safe job and work in the risk of getting detained any time. Job loss mortgage insurance can help organize a budget that could help them clear their financial crisis.

Mortgage Brokers in Victoria said...

I really think that until now this is the best option to keep our homes safe. Economy is not fully back. We still need it.