Home mortgage insurance might be your best friend

United Feature Syndicate Inc.

WASHINGTON -- Remember that extra money you had to lay out for private mortgage insurance when you closed on your mortgage?

Even if you decided to lump the fee together with what you borrowed and pay for it as part of your monthly house payment, you still didn't like the idea of paying for insurance that covers the lender, not you, in case you fail to pay as promised.

Of course, you were going to make your payments.

Why wouldn't you?

But you went along.

As you might recall, you had to.

Otherwise, no loan.

You didn't have enough cash for a 20 percent down payment. And without that, lenders require you to buy insurance to cover the difference between the money you have and 20 percent down.

That's just the way it is.

Well, as it turns out, if you get behind on your mortgage and need some help, your mortgage insurer just might be your best friend.

The insurer can't change the terms of your loan.

But it can intercede on your behalf with the lender -- or more precisely, the company that services your mortgage on behalf of the investor that now owns it -- and help you negotiate your way out of trouble.

"Most borrowers, if you put a gun to their heads, don't know who their MI company is, or even what mortgage insurance is all about," says Brian Gould, senior vice president of loss mitigation at United Guaranty in Greensboro, N.C. "But we can be very helpful."

Teresa Bryce, president of Radian Guaranty in Philadelphia, Pa., agrees. "I'm not sure we ever sold (mortgage insurance) that way, and I don't think anybody ever really thought about the alignment of interest between the borrower and insurer," she says. "But in case of adversity, we can be the borrower's best friend."

Through last year's first 11 months, Raleigh, N.C.-based Genworth Financial, another private mortgage insurer, worked with lenders and servicers to help complete more than 37,000 loan workouts or modifications on behalf of borrowers.

Through the first nine months of 2010, United Guaranty helped nearly 32,000 borrowers.

Insurers call them "cures." But that's a euphemism for simply bringing a troubled borrower current. Unfortunately, a good many underwater owners -- perhaps as many as half -- still can't make it to shore and re-default on their loans. So for some, a "cure" is merely a reprieve. But at least it buys you some time.

Helping troubled borrowers isn't all that altruistic, either.

Typically, insurers lose $50,000 to $60,000 for each insured mortgage that is foreclosed upon.

So it is in their best interest to do whatever they can to keep people in their homes.

Still, when you're in deep do-do, who cares where help comes from, as long as it really is help? And when it comes from your mortgage insurer, it really is.

"We spend a lot of time and effort on homeowner assistance," says Alan Goldberg, director of workout initiatives at Genworth. "You're definitely in a better position if you have MI."

The first step, then, for troubled borrowers is to determine if they have mortgage insurance and with which company. To do that, check your original good-faith estimate of closing costs, your HUD-1 settlement statement, your annual escrow-reconciliation statement or your payment book or notice. You also can call the servicer's customer-service department.

If you are working with your servicer and experiencing no problems, there may be no need to call in the cavalry. But if you're among the thousands who complain of difficulties getting through on the phone, spending endless hours on hold, getting dropped in mid-conversation, being tossed from one specialist to another and back again, or having to replace lost documentation, your MI can ride to the rescue.

Again, your insurer doesn't have the final say-so. But it can be your advocate. "If the borrower has the willingness and financial ability to remain in the home," says UG's Gould, "we try to work as a middleman to come up with a viable solution."

Even if there's just no way you can stick it out, your MI can help cushion the blow. Genworth, for example, will provide cash money -- Goldberg calls it "transition assistance" and "relocation assistance" -- to help you move.

And even if you attempted to get some help from your loan servicer a while back but failed, your MI can help you try again. "You may have been rejected a year ago, but things are vastly different today," Goldberg says. "So even if you tried before, there may be a new opportunity now."

Many mortgage insurers now have staffers sitting at desks at the largest loan servicers, working as liaisons between the servicer and the insurer. They act as "air-traffic controllers," says Gould, so that if a servicer has a question about an insured loan, the MI staffer is right there to provide a quick answer.

Like most servicers, MI companies have staffed up to handle the onslaught of defaults. Radian "has more folks in loss mitigation than anywhere else in the company right now," says spokesperson Emily Riley. And United Guaranty currently has two shifts of dedicated, bilingual workout specialists working from
8 a.m. to 9 p.m. Eastern time.

Unlike servicers, though, once you are assigned to a specific MI person, that's the person (or his backup) you deal with throughout your ordeal. You are not handed off -- or around.

Once you make contact, the MI specialist will perform an analysis of your situation to determine what, if any, workout/modification programs you qualify for and make recommendations. When you decide which option you prefer, the insurer makes what Goldberg calls "a warm handoff" to the servicer.

And perhaps best of all, your MI can throw some money into the deal on your behalf to smooth your way to a loan modification. Say, for example, that you are $10,000 behind and have no cash, but the owner of your mortgage wants you to pay up or no dice.

As long as you can handle the payments of the newly modified loan -- at a lower interest rate, perhaps, or an extended term -- your insurer can advance what you owe, up to a point, on your behalf. And it doesn't have to be paid back. Ever.

Insurers look at is as an advance on the investor's eventual claim, and are glad to pay it. After all, a $10,000 advance now is better than a $50,000 loss later. Says Genworth's Goldberg, "Anytime we can avoid a claim, it is to everyone's benefit."

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance-industry publications.