If you're facing foreclosure, you can get help from your mortgage insurer. Surprised? Even I was surprised when I heard of it. Most of the mortgage insurance companies have loss-mitigation departments. The loss mitigation experts try to negotiate with the lenders and borrowers for various repayment plans.
Lenders also have their team of loss mitigation experts but most of the borrowers do not feel comfortable in negotiating with them. On the other hand, it has been noted that borrowers sometimes are more receptive to mortgage insurers. The insurer's loss mitigation team will not call the borrower for payments but they would rather try to workout an option for the benefit of the borrowers. This attracts the borrowers to work with the mortgage insurer's loss mitigation team.
Why will mortgage insurer help a borrower who's facing foreclosure?
If a lender forecloses a property, it is the mortgage insurer who will have to reimburse the servicer and investor for their losses. This motivates the mortgage insurer and his loss mitigation team to negotiate workouts with borrowers and stop foreclosure.
How does the mortgage insurer's loss mitigation department work?
The mortgage insurance companies get a list of insured loans that are in default. From this list, the insurance companies choose a group of people and contact them for a period of 60 days. The insurance companies send a letter to inform the borrowers as to who they are and why they are interested in their loan. The loss mitigation department also informs them about ways in which they can help them. If the borrowers do not respond to the letter or call the insurer, the loss mitigation department of insurance company calls them and tries to negotiate with them.
The borrower has to fill out a hardship letter informing them about his financial crisis. The mortgage insurer analyzes the borrower's financial situation and recommends payment plans. The workout option will be finalized if the investor, servicer and mortgage insurance company approves it collectively.
Can all borrowers take advantage of this option?
Not really. Only those borrowers who have a mortgage insurance attached with their loans will be able to take advantage of this option. Most of the homeowners had avoided the mortgage insurance option during the housing boom. Rather they went for piggyback loans. Those with piggyback loans will not be able to go for this option.
Why will the lender allow the insurer to give the borrower a workout option?
Sometimes, the servicers get incentive to foreclose on a property rather than negotiating for a workout option. It has been found that sometimes it’s profitable for the lender to foreclose the property, collect the mortgage insurance and get rid of the delinquent borrower.
However, most lenders do not go for it. Why? There are two types of loans - loans owned by Fannie Mae and Freddie Mac and loans that are owned by private lenders. Those loans which are owned by Fannie Mae and Freddie Mac require the servicers to modify loans under the Home Affordable Modification program. In case of loans owned by private lenders, the mortgage insurance industry has introduced "Second Look" program. According to this program, the servicers will have to give mortgage insurers a chance to modify a loan before starting the foreclosure process.
It’s really good to see that mortgage insurers take lot of steps to help borrowers save their property and avoid foreclosure. However, it should be kept in mind that the borrowers have to be cooperative enough in order to get help from the insurer. At the end of the day, if the borrowers do not respond to the mortgage insurer, foreclosure would be only option left for them.