A new, nationwide form of mortgage payment insurance--covering up to nine months worth of mortgage payments for unemployed homeowners--is scheduled for launch early this week.

A subsidiary of General Electric Co. plans to unveil its new "Job Loss Payment" concept as early as today at the Mortgage Bankers Association of America’s national convention underway in Chicago. The program will pay up to $5,000 a month in principal, interest, taxes and other escrows for borrowers who become unemployed "through no fault of their own." Unlike a handful of other mortgage-oriented unemployment coverage plans, GE’s will be restricted to homeowners who already own their houses and who have solid payment records. The coverage will be offered through dozens of large mortgage banking and other firms who service millions of home loans and do business with GE’s private mortgage insurance subsidiary, General Electric Mortgage Insurance Co.

The actual insurance policies will be underwritten by another subsidiary, GE Casualty. The program works like this: Borrowers can opt for one of four levels of coverage--100 percent of monthly payments for up to six months, 50 percent of monthly payments for up to six months, 100 pecent of payments for up to nine months, or 50 percent of monthly payments for up to nine months.

The coverage levels carry different premium costs. For example, a borrower who wanted full mortgage payment coverage for up to six months of unemployment would have to pay an insurance premium equal to 4.5 percent of the regular monthly payment. If the regular monthly principal, interest, taxes and insurance payment came to $1,500, a borrower who wanted unemployment protection would pay his or her loan servicer another 4.5 percent on top of that--$67.50 per month extra or $1,567.50. In the event of a layoff at the borrower’s place of employment, the borrower would be covered for up to six months of $1,500 mortgage payments, or $9,000.

For a premium of 5.5 pecent of the monthly payment, the same borrower could get coverage for up to nine months of payments, or $13,500 in total. Maximum payout on the plan is $45,000 over a nine month period. Dual-income homeowners can opt for 50 percent-of-payment coverage at reduced premium rates (2.55 percent of monthly payment for up to six months mortgage coverage) or 3.05 percent for up to nine months.

Lewis Fain, the GE Casualty senior vice president running the new program, says intensive consumer focus group and polling research conducted over the past two years has revealed that homeowners harbor deep fears of losing their houses to job loss in a shaky economy. The same research found that "relatively few families have the recommended six months of financial reserves on hand" needed to to carry the property through an extended period of unemployment and to avoid foreclosure.

"People are worried about a possible meltdown" of their personal financial health--loss of the house and accumulated home equity, said Fain. The new insurance coverage "is intended to provide that backstop" if savings are not sufficient to keep paying the mortgage.

The new plan will be restricted to homeowners who work at least 30 hours a week, are not self-employed or seasonally employed. There will be a mandatory 180-day "vesting period" before a claim can be filed. But if the borrower becomes unemployed during that time, according to Fain, all premiums will be refunded.

Published: October 21, 2002

Use of this article without permission is a violation of federal copyright laws.

Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.