Once properties become REO (real estate owned), banks must be more vigilant than ever to protect their investments. Even in “good” times, over one million homes are foreclosed every year. Despite the economic recovery, the U.S. is still seeing foreclosure filings of about 4% higher nationwide (289,116 in 1Q2016) compared to the pre-recession quarterly average of 278,912 (1Q2006 to 3Q2007).
To reduce losses, a bank has two choices to insure their properties until they can be sold:
Individual Underwriting: A “pay as you go” process where banks contact their insurance carrier, go through the underwriting process, and receive premium adjustments any time a property is added or deleted from their foreclosure portfolio.
Reporting Form: A reporting form is set up in which the bank can adjust the tally of their portfolio on a monthly basis and adjust premium accordingly. A reporting form generally has guidelines that provide coverage for most foreclosed properties without the need to individually underwrite.
When purchasing either of these options, a bank should consider their Force-placed Property Insurance options. This is a policy feature that allows the bank to guarantee a property is insured should the mortgagee fail to carry a policy – whether as part of the foreclosure process or not. As the name indicates, the bank is forcing the owner to carry insurance and in most states charge the premium to the customer’s account.
The foreclosure situation in the U.S. is improving but we still have a lot of work to do in protect foreclosed properties. Please see our REO and Collateral Coverage for more details.
To learn more about other insurance products that help financial institutions protect their interests, please visit www.amtrustfi.com.
Gina Juhnke is assistant vice president, financial institutions, for AmTrust North America, a multi-national property and casualty insurer specializing in coverage for small businesses. Please visit our website for more information on our small business insurance coverage.