Chapter 7: Insurance in the mortgage industry Flashcards
Mortgage default insurance
between lender and insurer that will compensate the lender for losses sufference on the insured loan (this is a premium)
How has mortgage default insurance improved the mortgage market?
(2)
By enabling lenders to make loans in excess of 80% loan to value and recover insured losses by making a claim to the insurer, thereby ensuring the stability of the banking sector.
By enabling borrowers to receive high ratio mortgages with favourable terms and favourable interest rates
Default management program
assist borrowers who get into financial difficulties and have trouble paying their scheduled mortgage payments
How can a borrower currently in default be assisted by the lender and the mortgage default insurer?
(5)
- prepay and borrow (make lump sum payments)
- extend mortgage payment deferrals (up to 4 months)
- extenstion of amortization (up to 40 years)
- special payment arrangement
- capitalization (no equity)
Life insurance
Pre underwritten. insurance premium included in mortgage payment. Provide financial compensation to the beneficiary upon the death of the insured (pay off borrowers mortgage balance)
Home Insurance
(3)
home insurance: protect on physical building and all the things in the home owners house
- actual cash value (what is worth today not when purchased)
- replacement value (replacing items)
Title Insurance
provide coverage for the title related risk associated with real estate
Beneficiary
person who receives the payments of the amount of the insurance after the death of the insured. Creditor insurance name lender as the beneficiary
Enroachment
piece of property hangs from one property over the property line of another (fence, tree, garage)
Who pays the default insurance premium?
he lender, who then charges the borrower the same amount as the premium it paid to the insurer
How does default insurance protect the lender?
Because it pays the lender if the borrower defaults and the lender suffers a loss, it prevents lenders from losing money on high ratio mortgages
How does title insurance benefit a) the borrower? b) the lender? c) the real estate lawyer?
- the borrower: Provides coverage against fraud and forgery from the time the policy is in force.
- the lender: Provides coverage against title defects and items that occurred before closing that may make the property unmarketable
- the real estate lawyer: Reduces the amount of work required to close a mortgage transaction
Which companies are currently licensed to provide title insurance in Ontario?
(4)
- Chicago Title Insurance Company https://chicagotitle.ca/
- FCT Insurance Company Ltd (First Canadian Title) https://fct.ca/
- TitlePLUS https://titleplus.ca/
- Stewart Title Guaranty Company https://www.stewart.ca/
What is the CMHC Improvement program?
A program that can assist real estate salespersons to sell homes that need immediate repairs that buyers might not otherwise be interested in purchasing.
Describe the default management tool, capitalization.
For a borrower who has little or no equity in the property, but who has stable income and can demonstrate the ability to repay the outstanding mortgage balance and capitalized amount over the remaining amortization period. Permits the borrower to add arrears of Principal and Interest, unpaid taxes, utility bills, property repair costs to protect the security, and other outstanding charges and arrears which become payable as part of a claim.
The Approved Lender can approve and implement this option up to a total maximum capitalized amount of $20,000 subject to a documented and substantiated workout analysis. For amounts over $20,000, CMHC authorization is required. Capitalization is a technique of last resort and should be used only once during the life of the loan.
