Hazard Insurance

Spring is the peak time for flood risk in much of America, and for that reason a lot of attention has been focused on flood risk recently. Fortunately, we haven't seen the kind of widespread flooding that has created national disaster areas in some previous years - at least not yet. Hopefully, the next time widespread flooding does hit, lenders will find their collateral better protected than before. The federal government and entities such as Fannie Mae and Freddie Mac have stepped up efforts to make sure homeowners obtain federally insured flood insurance as a condition for getting a mortgage loan. But floods aren't the only peril that lenders need to worry about.

In fact, there are a host of threats that could diminish the value of a lender's collateral, on either residential or commercial mortgage loans. Windstorms, fires and earthquakes are among the perils lenders most often seek protection against. Unfortunately, terrorism has been added to the mix as well in the aftermath of 9/11. The insurance industry, with some help from Uncle Sam, is struggling to figure out how to underwrite terrorism coverage.

Corporate balance sheets are under more scrutiny than ever before. And that means that lenders would be ill-advised to neglect their disaster insurance needs. Any widespread disaster has the impact to wipe out the value of a portfolio, and corporate leaders don't want any surprises to crop up in their books these days.

In most cases, large servicers outsource the task to firms that specialize in managing lender insurance needs such as tracking policies to make sure coverage doesn't lapse, force-placing coverage when homeowners don't voluntarily comply with requirements, and making sure coverage is adequate. Copyright 2003 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com, http://www.mortgageservicingnews.com