The mortgage industry has experienced tumultuous shifts since and during the pandemic. Key changes have occurred from emergent forbearances to a frenzied housing market with high pricing and lower than average inventory, long build times for new construction, high levels of inflation and changing compliance standards and regulatory guidance. While early-stage delinquencies have remained stable, advanced delinquencies reached record highs throughout 2020, and in recent months have been decreasing once again, though they haven’t returned to delinquency levels seen prior to the pandemic. This is a usual indicator of turbulence in property owners’ finances.
These market trends impact how lenders manage and mitigate corresponding risk. Mitigating the risk of uninsured or underinsured real estate has been a longstanding priority in the mortgage industry. The pandemic has called for expedited enhancements to mortgage risk strategies. Having a strategy in place for monitoring your real estates’ insurance also better prepares your financial institution for unexpected loss or shifts in the economy.
Protecting Property with Insurance Risk Management and Lender Placement
When a property owner does not purchase adequate insurance on their property, or allows a lapse of coverage, Lender Placed Insurance provides appropriate temporary coverage. This coverage is also known as force-placed insurance and is utilized by the lending institution to avoid loss while the property is under- or uninsured. Obtaining this type of coverage, and a possible premium charge to the borrower, should be considered a last resort after the borrower has been given multiple opportunities to acquire and provide proof of adequate insurance. Monitoring and tracking insurance can provide a more proactive stance for real estate protection. Accurate monitoring can identify unmitigated risk that exists on the portfolio, and can direct the appropriate actions, such as lender placement, to further reduce that risk.
Holistic Real Estate Risk Management: Combining Insurance Verification with Lender Placement
A holistic approach to real estate risk management combines insurance tracking and servicing with a hybrid insurance verification strategy and places insurance premium only if adequate insurance cannot be verified.
Core elements of a real estate protection program should include infrastructure for data integrations, self-service insurance verification for borrowers, and compliance monitoring. Here are 5 benefits of an advanced insurance servicing program:
5 Benefits of an Advanced Insurance Risk Management Program for Mortgage Portfolios
- Get real-time insurance updates from carriers
Loan servicing platform integrations are essential to a strong mortgage tracking program. Leveraging data integrations with top insurance carriers gives your lending institution real-time tracking and updates on your borrowers’ insurance status, without needing to contact your borrower. This is particularly helpful if your borrower has adequate insurance but simply hasn’t verified it with your institution. Advanced, bi-directional solutions can integrate with mortgage servicing platforms such as Black Knight, Sagent, FICS, Fiserv, Finastra, Corelation, and others. These data integrations provide the insurance information you need and eliminate a touchpoint with your borrower, creating a more seamless experience for both lender and borrower. - Provide a convenient way for borrowers to self-verify insurance
Aside from data integrations that search for existing insurance, involving the borrower in the insurance verification process is key to enhancing the borrower relationship and increases the likelihood of verifying insurance status and coverage. Providing a self-service platform for borrowers to verify the status of their insurance empowers borrowers to take control of their financial situations as well as helps them understand financial language. Solutions like My Insurance Info offer simple insurance verification self-service, plus provide education on the implications of avoiding insurance verification and answer any questions about the process. - Compliantly monitor flood insurance
Determining if a property - residential or commercial - is in a Special Flood Hazard Area (flood zones A or V) is a crucial element of portfolio risk management and compliance. Flood Risk Rating Determination monitoring can identify properties used to secure loans in a FEMA designated Special Flood Hazard Area. Because flood insurance carries more regulatory burden and oversight, a proven, compliant solution is needed to monitor this type of insurance and take all the appropriate actions in a timely manner when a flood insurance exposure is identified. - Manage and track escrows
Tracking the various elements and reports associated with escrow payments to maintain compliance with Reg Z, Fannie Mae, and flood regulations can be very complex. Relying on a proven real estate management program can help protect your mortgage portfolio and escrow responsibilities. One such program actively monitors loans and disburses payments on behalf of your institution, all with quality and compliance assurance. - Reduce false placements and minimize borrower frustration
A primary goal of a real estate protection program is to reduce and avoid false placement. False placement occurs when a lender places insurance on an asset that does, in fact, have adequate insurance. Our expertise shows that a small percentage of a portfolio might not have provided proof of adequate coverage. Allied’s experience shows that less than 1% of borrowers will remain under- or uninsured once reminded of their obligation to provide proof of insurance. With proactive mortgage insurance tracking, insurance is only placed on this small percentage of the portfolio, when absolutely necessary to do so.
One way to reduce borrower frustration around false placement is to offer multiple notifications, through various channels, and staggered on a compliant timeline, to remind borrowers of their obligation to provide proof of adequate coverage on their property. These notifications can be in the form of text, emails, and printed notices mailed to the borrowers’ address. Additional program features, like delayed billing, give the borrower a grace period to provide proof of adequate insurance.
Seeing a charge for insurance added to their mortgage can be alarming to borrowers, especially when they are carrying adequate insurance. Reducing false placement on borrowers’ property can result in less borrower frustration and more satisfied borrowers overall.
Learn more about our first-to-market solution that prioritizes your borrower.
A well-rounded risk management program protects all portfolios, including real estate. With the right partner, your mortgage tracking and insurance program can include compliance support, digitization of the mortgage tracking process, as well as compliant borrower notifications. These features aggregate together for a more seamless experience for your borrower and reduce your risk of uninsured real estate loss, while improving regulatory compliance.