Chapter 7: Insurance in the Mortgage Industry Flashcards
How has mortgage default insurance improved the mortgage market?
- Allows lenders to make loans in excess of 80% LTV and recover losses by making a claim to the insurer.
- Allows the Borrower to receive high ratio mortgage with favourable terms and favourable interest rates.
Who are the current mortgage default providers in Ontario?
CMHC, Genworth, Canada Guranty
What is/are the main benefits of mortgage default insurance for:
a) the Borrower
b) the Lender
a) Borrower: Allows them to receive high ratio mortgages with competitive rates from chartered banks
b) Lender: Pays the lender on successful claims if the Borrower defaults
How can a Borrower currently in default be assisted by the Lender and the mortgage default insurer?
CMHC + Genworth Financial provides mortgage default management programs (financial difficulty + trouble making payments).
Typically, programs are provided through Lender in conjunction with the insurer.
- Special Payment Arrangements
Lender may make arrangements with the Borrower to recover payment arrears over the shortest period, as long as it is within the Borrower’s financial ability.
Example: CMHC policy, Lender may do this with amounts up to $10,000 without approval.
- Reamortization
Lender may increase amortization of a mortgage when the default is due to the payments no longer being affordable for the Borrower.
- Capitalization
This procedure allows the Lender to add the amount of arrears to the loan amount.
With CMHC policy, Lender may increase the loan amount up to $20,000 one time during the Borrower’s ownership without CMHCs approval.
Other options are available.
How does title insurance benefit a) the borrower? b) the lender? c) the real estate lawyer?
a) the borrower: Provides coverage against fraud and forgery from time policy is in force
b) the lender: Provides coverage against title defects and items that occurred before closing that may make that property unmarketable
c) Lawyer: reduces the amount of work required to close a mortgage transaction
What type of insurance would you suggest to a purchaser of a condominium?
Contents insurance since the master policy only covers the unit, not the contents.
When was the title insurance first introduced in the United States and Canada?
The first title insurance company, the Law Property Assurance and Trust Society, was formed in Pennsylvania in 1853.
Title Insurance was developed in the United States and until the early 1990s was not available in Canada.
Virtually all real estate transactions in the United States currently carry title insurance, while its popularity is continuing to grow in Canada.
Discuss the main differences between mortgage creditor life insurance and term life insurance
Mortgage Creditor Insurance
Underwriting: Post-written
Convenience: Quick and easy to quality
Portability: None
Premiums: Level
Amount of initial coverage: Determined by the amount of mortgage
Protection on default/illness: If the Borrower defaults or cannot make his or her mortgage payment, the insurance will cease as the insurance is tied to the mortgage.
Amount of continuing coverage: Decreases
Term Life Insurance
Underwriting: Pre-Underwritten
Convenience: Medical investigation, lengthening process
Portability: Independent of lender
Premiums: Levels
Amount of initial coverage: Determined by the insured
Protection on default/illness: As long as the insured can pay the insurance premium, the insurance continues, regardless of whether the mortgage payment cannot be made.
Amount of continuing coverage: Constant
which companies are currently licensed to provide title insurance in Ontario?
Stewart Title First Canadian Title LawPro Chicago Title Insurance Company First American Title Insurance Company Lawyers Title Insurance Travelers Guaranty Company of Canada
Without errors and omissions insurance, what might the consequences be to a Mortgage Broker who commits an error and is sued by a client?
Errors and Omissions insurance is an insurance policy that covers the professional from claims made against him or her due to negligence in the form of errors committed in a transaction. Insurance policies prior to 2008 did not have a fraud provision. Therefore, if the Mortgage Broker were to commit fraud and the Borrower suffer a loss he or she could not receive compensation from the Broker’s errors and omissions policy.
