Refining Insurance Processes May Pay Dividends

by Mark Sarrett
MortgageOrb

REQUIRED READING: With foreclosures remaining a pressing concern for all financial institutions, mortgage servicers are aggressively seeking new and proactive ways to curb losses. A financial institution that pays attention to the insurance status of its properties through a mandated, regimented program of internal review and external inspection will reap benefits compared to servicers that de-emphasize this aspect of their business.

Wise financial institutions should be aware of the insurance status of all of their properties, so that when their properties appear to be headed for foreclosure, the insurance protection is never in doubt. They should diligently enforce their requirement to be named on any mortgagor’s primary (i.e., homeowner) policies. Servicers may utilize an insurance tracking company to outsource this aspect of their protection plan, or they may use their own internal staff. Either way, diligence is the most important factor in protection.

Protection may come in various forms. Most borrowers provide protection to the servicer through their personal homeowner or commercial hazard policy that names the financial institution as the mortgagee. Requiring and maintaining this protection is essential for the servicer, as it is typically the least-expensive avenue for insurance coverage.

Other solutions available include for the servicer to directly purchase hazard insurance or blanket hazard insurance to protect its interest. These policies are placed once it is discovered that the servicer’s interest in the property is exposed through the expiration or cancellation of a borrower’s coverage. Since primary outside insurance typically offers more coverage than the average lender-directed insurance policy and usually has a lower deductible, maintaining the borrower’s coverage is recommended whenever possible. >>READ ENTIRE ARTICLE