Mortgage Loan or Installment Loan?
Equity loans (HELOCS) and also 2nd mortgages pose a
servicing challenge to lenders. Originated, and
often serviced as installment loans, these loans are
also still technically mortgages.
The result? A dilemna for many lenders...
how to properly service these loans for insurance.
2nds vs. 1sts - Is the Risk the Same?
Consider that equity loans…
1. Rarely go to foreclosure
2. Rarely cause financial loss due to the lack of
3. Are simultaneously being tracked by the first
4. Do not have escrow capability (to force place
5. Have floating loan balances
Alternatives to Tracking Insurance
In the past two decades, many lenders have said “no”
to tracking insurance for HELOCs. They have chosen
instead an alternative approach, which:
- eliminates the cost and headache of tracking
- keeps the lender in full compliance
- costs substantially less than the cost of tracking
- provides coverage for the entire portfolio
- eliminates the need to force place
The Two Insurance Alternatives
1) Blanket Force Placed Insurance
For a single premium, it covers the entire HELOC
portfolio with traditional force placed insurance,
in which the coverage pays for damage to the
mortgaged property. Cost is based on the size of the
2) Mortgage Impairment "Elimination of Checking"
This endorsement is available on several different
mortgage impairment policies. It removes the
insurance maintenance requirements (for 2nds and
equities only) thereby eliminating risk of
financial loss to the institution. As this is
impairment coverage, the cost of the endorsement
is substantially less than the cost of the
Both alternatives solve the problem of tracking
insurance on equity loans and 2nd mortgages.
Regulatory compliance is maintained, and risk is