Over the past decade, lender-placed insurance programs have usually been an afterthought for financial institutions: Delinquency rates on real estate loans were at historic lows1 and borrowers could easily obtain affordable insurance coverage to satisfy real estate loan terms.
Lender-placed insurance protects lenders if a borrower fails to obtain sufficient coverage under their loan agreement. Most financial institutions haven’t had to issue lender-placed insurance to protect their asset portfolios because there hasn’t been a widespread need.
Until now.
Interest rate hikes and tighter credit conditions are increasing loan costs, which has resulted in rising delinquencies.2 And rising delinquencies suggest financial institutions are issuing more lender-placed insurance.
A difficult insurance market also means more lender-placed insurance
Due to several factors, insurance rates have been rising the past few years, and in some cases, those increases have been dramatic. As a result, borrowers may cut back on insurance or delay paying premiums in order to cut costs.
What’s more, there have been insurers abandoning some markets en masse, citing their inability to stay profitable in the face of increased catastrophes. That often leaves real estate owners unable to secure coverage at an affordable rate.
In these cases, lenders and servicers have no choice but to apply lender-placed insurance on borrowers.
