After the tumultuous hurricanes of 2004 and 2005, especially Katrina, lenders got something of a break last year. Despite dire warnings, the hurricane tally was pretty low in 2006. The year, in general, saw fewer property threats from natural disasters than most years. But 2005 is not forgotten. At least not by the insurance companies, lenders and homeowners in Florida and the Gulf Coast who had to live through it.
Today, many insurers have scaled back coverage in areas prone to hurricanes. In part, their hands have been tied by the reinsurance industry, which has focused more heavily on geographic dispersion of risk in the aftermath of Katrina. Nobody wants a high concentration of policies from one risky region on their books.
But since homeowners insurance is generally a condition for obtaining a mortgage loan, lenders are acutely affected by changes in insurance availability. And it's the loan servicer, of course, who is responsible for making sure that coverage remains in effect throughout the life of the loan.
As homeowners insurance becomes more expensive and more difficult to obtain, that job of making sure insurance stays in place gets more difficult. And its one reason why companies that track insurance coverage and help lenders place insurance involuntarily when necessary are so important to the industry.
Last year may have been a welcome relief, at least from perils associated with major natural disasters, but everyone knows that the next big storm or earthquake will raise serious issues for the property insurance industry once again in the future. And any changes in the insurance industry will percolate through to the home loan business as well.
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