By Holden Lewis
bankrate.com
Homeowners and lenders aren't the only losers in foreclosure. Mortgage insurers have a lot at stake, too -- and they're doing a variety of things to keep people in their houses.
In some cases, mortgage insurers kick in cash to help borrowers catch up on their house payments. One company doesn't even ask for the money back.
Mortgage insurers do plenty besides writing checks, though. Their other foreclosure-prevention tactics include:
-- Partnering with credit counseling agencies to contact borrowers who have fallen behind on their payments.
-- Stationing employees in lenders' offices to speed up workouts.
-- Calling borrowers directly to negotiate payment plans and modifications.
Private mortgage insurance, or PMI, is a policy that the borrower pays for, but the lender is the beneficiary. The policy reimburses the lender if it loses money after a foreclosure, or if all sides agree to sell the house for less than the loan balance (called a short sale). Lenders require mortgage insurance on home loans of more than 80 percent of the house's value -- in other words, when the down payment is less than 20 percent.
During the housing frenzy of 2003 to 2007, a lot of buyers avoided mortgage insurance by getting piggybacks -- home equity loans on top of their primary mortgages. And most subprime loans were deemed too risky to be insured. Still, hundreds of thousands of homeowners bought mortgage insurance, and that provides them with another avenue of help.
Each mortgage insurance company does things in its own way. MGIC, the biggest mortgage insurer by volume, asks lenders for lists of insured borrowers who haven't returned calls or responded to collection letters. If MGIC employees contact the borrowers, they try to negotiate workouts.
Mortgage insurer Genworth calls borrowers after they have missed two or three payments. The lender keeps trying to reach the borrower, too. If the lender reaches the borrower first, Genworth stops trying.
Whether the call comes from a lender or a mortgage insurer or a credit counselor, a homeowner can expect the loss-mitigation call to unfold in stages.
The first option is to get the homeowner current by paying a lump sum. If that's not possible, the two sides try to fashion a plan to repay the past-due amount within a year or 18 months. Failing that, they discuss modifying the mortgage -- by changing the rate or the final payoff date or even forgiving some of the debt. If those options can't work, the homeowner will have to give up the house, either through a short sale, or by handing over the keys or by getting kicked out in foreclosure.
Radian, a Philadelphia company that collects financial information, mails brochures that direct borrowers to the company's Web site. "They'll work directly with the mortgage servicer to see if they can achieve a workout," says Camillo Melchiorre III, Radian's senior vice president of loss management.
All mortgage insurers offer what they call "claim advances" to qualified borrowers. Claim advances are loans or grants to pay past-due amounts and bring accounts current, or even to buy lower rates. Typically, an advance is set up as a second or third mortgage at zero percent interest, to be repaid within five years.
If there's a typical recipient of a claim advance, it's someone who missed house payments because of unemployment or illness or unexpected bills, and who, in Melchiorre's words, "may have some kind of positive turnaround, but they don't have enough money to fully reinstate. The whole idea is to keep the borrower in the property if they're willing, and some kind of restructuring can be done."
Lenders aren't fond of claim advances because of the time and labor involved. As with any mortgage, they require paperwork and a closing. If the homeowner has to repay the money, it adds to the monthly debt burden that makes a future foreclosure more likely.
Radian doesn't require repayment of claim advances.
Generosity has limits. The maximum grant (called a FastAdvance) is 15 percent of the loan amount or $15,000. Most recipients need far less.
Finally, there's an almost-invisible method that mortgage insurers deploy to combat foreclosures: They station their own employees in lenders' loss-mitigation departments. These people don't deal directly with borrowers, but they're available for unscheduled, face-to-face talks with the workout negotiators who do.
E-mail Holden Lewis at editors@bankrate.com Distributed by Scripps Howard News Service. E-mail Holden Lewis at hlewis@bankrate.com
