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Mortgage Loan or Installment Loan?

Equity loans (HELOCS) and also 2nd mortgages pose a servicing challenge to lenders. Originated, and often serviced as installment loans, these loans are also still technically mortgages. 

The result?  A dilemna for many lenders... how to properly service these loans for insurance.

2nds vs. 1sts - Is the Risk the Same?

Consider that equity loans…

1. Rarely go to foreclosure
2. Rarely cause financial loss due to the lack of insurance.
3. Are simultaneously being tracked by the first mortgagee.
4. Do not have escrow capability (to force place coverage)
5. Have floating loan balances

Alternatives to Tracking Insurance

In the past two decades, many lenders have said “no” to tracking insurance for HELOCs. They have chosen instead an alternative approach, which:

- eliminates the cost and headache of tracking
- keeps the lender in full compliance
- costs substantially less than the cost of tracking
- provides coverage for the entire portfolio
- eliminates the need to force place

The Two Insurance Alternatives

1) Blanket Force Placed Insurance

For a single premium, it covers the entire HELOC portfolio with traditional force placed insurance, in which the coverage pays for damage to the mortgaged property. Cost is based on the size of the HELOC portfolio

2) Mortgage Impairment "Elimination of Checking"

This endorsement is available on several different mortgage impairment policies.  It removes the insurance maintenance requirements (for 2nds and equities only) thereby eliminating risk of financial loss to the institution. As this is impairment coverage, the cost of the endorsement is substantially less than the cost of the blanket policy.


Both alternatives solve the problem of tracking insurance on equity loans and 2nd mortgages. Regulatory compliance is maintained, and risk is completely eliminated.

Lenders Financial Insurance Services
(248) 689-2001
(855) 313-1468 (fax)