Can You Avoid Foreclosure With A “Second Look”?
We usually think of foreclosures as battles between lenders and borrowers, but in many cases there is actually a third party in the process, mortgage insurance companies.
Mortgage insurance companies have a big stake in bad times because when insured borrowers fail it’s the MI companies that can face big claims. The good news is that to date the MI companies have paid all claims and have actually increased loss reserves.
Big Reserves
The MI companies are in good shape because they’re state-regulated. Under state rules mortgage insurance firms must set aside 50 percent of all premium dollars in a contingency fund for 10 years. They must also add to loss reserves whenever there’s a delinquency.
Because piggyback loans were largely designed to avoid mortgage insurance coverage, the MI companies generally evaded the liability associated with such financing. However, they have covered millions of conventional mortgages and in an environment with tough times and rising unemployment levels it follows that they face big claims.
Claim Advances
Borrowers and mortgage insurers are allies in the fight against foreclosure — borrowers don’t want to lose their homes and MI companies want to hold down claims. To help borrowers, MI companies sometimes will offer a claim advance, money paid to a lender to help borrowers get past a rough financial patch.
Why would MI companies offer such help? First, because it is less expensive to advance some cash and perhaps avoid foreclosure than to lose a home. Second, because any money paid with a claim advance reduces any money which might be owed to a lender when a home is foreclosed.
Second Look Program
The Mortgage Insurance Companies of America (MICA), the national association which represents the MI industry, has now launched a “second look” program. In basic terms the idea is to alert the public that in some cases — but not all — MI companies may be able to assist distressed borrowers.
Under the Second Look program, MI companies see if it’s possible to “give borrowers an additional underwriting review if they have been turned down for a loan modification of a non-GSE mortgage.”
“The new program,” says MICA, “is designed to be used on any non-GSE loan modification where a so-called “net present value– (NPV) test is used to determine eligibility. These could include jumbo mortgages, loans on investors’ balance sheets and loans that were packaged into private-label mortgage securities.”
The Bottom Line: If you face the loss of your home, please follow the steps outlined in our free mortgage modification guide. If you cannot make any progress with your lender, then you or your attorney should contact your MI company immediately.
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