THOMAS R. GLEASON
‘Groundbreaking’ product
Purchasing a home, especially for the first time, can be daunting. It only becomes more intimidating with fears of losing that home. But now, MassHousing has introduced a way for borrowers to have some peace of mind.
Recently implemented, MI Plus provides no-cost, job-loss protection coverage through various MassHousing programs. The new mortgage insurance protects borrowers because MassHousing makes the principal and interest payments on a homeowner’s mortgage for up to six months in the case of unemployment.
The insurance is different than standard mortgage insurance because it offers something to the borrower. With standard insurance, when a borrower puts down less than the 20 percent he is required to pay to protect the lender in the event of foreclosure, the borrower receives nothing in return.
MassHousing, a quasi-public state agency that makes and insures affordable home loans, is touting its new product as the first offered by a housing finance agency in the country.
“It is groundbreaking,” said MassHousing Executive Director Thomas R. Gleason. “MassHousing’s MI Plus provides a new benefit to consumers who must purchase home mortgage insurance. We believe this will change the way consumers see mortgage insurance and provide an additional incentive for first-time buyers to make the leap to homeownership.”
Gleason said the idea to offer mortgage insurance that benefits the borrower grew out of discussions with focus groups containing potential homebuyers. He said the two fears most often expressed were “how do I save enough?” and fear of losing one’s job and subsequently their home.
“They will do anything to keep [their home],” said Gleason.
‘A Big Help’
MI Plus coverage has been automatically included on every mortgage loan insured by MassHousing after July 1. Those include all MassHousing-financed loans where the borrower makes less than a 20 percent down payment and loans made by private lenders who used MassHousing as the mortgage insurer.
MI Plus will cover payments, up to a maximum of $2,000 for up to six months during the first 10 years of the mortgage. The six months can be taken in any combination, such as one period of six payments or two periods of three payments. MassHousing makes the payments directly to the lender.
As an example, Gleason said if a borrower has a $250,000 mortgage, the borrower might pay $125 per month for mortgage insurance.
Gleason explained that there was a six-month process during which MassHousing developed the insurance and added that lenders have been receptive to the new product. Among them is W. David Brennan, senior vice president and treasurer at Wareham-based Plymouth Savings Bank, who said the new mortgage insurance will let borrowers feel they are reaping some benefits. Plymouth Savings is one of 150 lenders in Massachusetts that work with MassHousing.
Brennan said for consumers who have thought twice about purchasing a home, the new mortgage insurance should take some fear away.
“We think it will be a big help to low- to moderate-[income] first-time homebuyers,” said Brennan. “This goes a long way to curtailing those fears.”
Brennan said there are other insurance programs that may offer a safeguard during a period of unemployment, but they have generally cost borrowers additional money. He described MassHousing as “progressive” for creating MI Plus.
In order to be eligible, a homeowner whose loan is insured by MassHousing must live in the property that is the subject of the mortgage loan and must have made at least six monthly mortgage payments. The homeowner also must show proof he is receiving unemployment benefits from Massachusetts and cannot have collected more than four weeks of unemployment over the previous year prior to filing for his initial benefit.
Because borrowers are not charged extra if MI Plus makes some mortgage payments on their behalf, the new product could be viewed as risky for MassHousing. Gleason, however, said that’s not the case.
Gleason said the agency was careful when forming the financial structure of the insurance. The agency looked at unemployment rates and sustained unemployment, and the product is financially sustainable, he said.
Gleason added that whether unemployment rates are high or low, the product will be offered all the time.
“It’s been designed to work in each part of the economy,” he said.
While MassHousing is the first public entity to offer such a product, there are two national private mortgage insurers who offer the benefit of unemployment coverage.
Mortgage Guaranty Insurance Corp. states on its Web site that if a borrower runs into financial difficulties the company will try to help find ways to make the mortgage payment. According to the Web site, MGIC’s PrivateMI companies will work with lenders to restructure payments and terms and refrain from collecting the loan for a period of time.
MGIC also offers specific mortgage insurance with involuntary unemployment coverage. The coverage pays the borrower’s full mortgage payments for a specified period of time, usually six months, in the event of unemployment due to strikes, lockouts or layoffs. The lender can purchase coverage for the first year with the borrower’s option to renew.
Genworth Financial recently began offering three different mortgage insurance plans with unemployment coverage: PaymentPlus, PointsPlus and CashPlus. CashPlus is a lender-paid mortgage insurance that provides cash back at closing. PointsPlus is also a lender-paid product where borrowers pay points to reduce their mortgage interest rate and monthly payment.
However, PaymentPlus is similar to MI Plus because it is borrower-paid. The insurance also gives borrowers lower monthly payments.
Each of the Genworth products provides the borrower with two years of involuntary unemployment protection for a two-year term, paying the principal, interest, taxes and insurance up to $2,000 for up to six months.
Gleason said MassHousing is working with other finance agencies to replicate the program in other states.
The ultimate goal, Gleason noted, is to get people into homes – and MI Plus is helping do that while changing the way people look at mortgage insurance.
“It’s realigning how benefits should flow,” he said.
Jennifer Jope may be reached at jjope@thewarrengroup.com.
