Chapter 7 - Insurance in the Mortgage Industry Flashcards
How has mortgage default insurance improved the mortgage market?
Allows the Lender to make loans in excess of 80% Loan to Value and recover insured losses by making a claim to the insurer
Allows the Borrower to receive a high ratio mortgage with favourable terms and a favourable interest rate.
Name the 3 MTG insurance companies (for high ratio mortgages)
CMHC, Genworth and Canada Guaranty
How can a Borrower currently in default be assisted by the Lender and the mortgage default insurer? (3)
Special Payment Arrangements
Reamortization
Capitalization (add amount of arrears to the loan)
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 the time the policy is in force.
b) the lender: Provides coverage against title defects and items that occurred before closing that may make the property unmarketable
c) the real estate 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
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 covers the MTG broker from claims made against him or her due to negligence in the form of errors committed in a transaction
What are the two ways a borrower can obtain mortgage creditor insurance?
- By an institutional lender
- By a 3rd party (i.e., Mortgage Protection Plan) - not affiliated with an institutional lender
Both types of mortgage credit insurance are designed to pay the institutional lender upon death of the insured
Describe 4 features of lender’s mortgage creditor insurance (i.e., insurance provided by an institutional lender) *Hint: CGPE
- Convenient - Insurance premium usually included in the mortgage payment
- Groups certain borrowers under the same category (i.e., smokers and non-smokers)
- Post Underwritten - borrower has to answer 3 basic health questions during the application
- Expires once the mortgage is paid off OR when the borrower reaches 70 years old
Re: Post-Underwriting for lender’s mortgage creditor insurance. Fill in the blanks: If the borrower answers no to all of the 3 basic health questions he or she is ______. If the borrower answers yes to any of the questions, he or she must ______. The lender may then decide what steps, if any, must be taken for the borrower’s application to be approved.
No = the borrower is typically approved
Yes = must supply additional details along with the application
What’s another name for mortgage creditor insurance?
Define what this means?
Declining term insurance
Means that the amount of the coverage declines as the outstanding balance of the mortgage is repaid by the borrower, even though the amount of the premium stays the same
Who is the main beneficiary of mortgage credit insurance?
The lender
True or False: Third party insurance (i.e., mortgage protection plan) can be taken with the borrower to a new lender
True
What are the 3 main differences between mortgage creditor insurance and third party insurance?
- Includes a total disability option
- Independent of the lender
- Offers a 60 day refund on premiums if the policy holder cancels
What is the difference between term life insurance and whole life insurance?
Term insurance = policy is in effect for the term. Once the term is up, there is an option to renew
Whole life insurance = More expensive. Client only pays throughout the term. Once the term is up, coverage continues for the entirety of the policyholder’s life
Life insurance is __-underwritten vs. mortgage credit insurance is ___-underwritten
Life insurance is pre-underwritten
Mortgage credit insurance is post-underwritten
