For most homeowners, their mortgage insurance is just another footnote on their monthly mortgage payment. Many homeowners do not even realize that they have mortgage insurance, and they often have no idea about how much it is costing them. Imagine many borrowers’ surprise, then, when months or years after their foreclosure they receive a bill in the mail for the balance on their foreclosed home, courtesy of their mortgage insurer. Many borrowers are only now receiving these bills from the companies that, if they thought about them at all, they thought were there to insure their lenders against losses from foreclosure so that they, the homeowners, could move on with their lives.
In reality, mortgage insurance is designed to protect the bank from losses associated with foreclosure, and borrowers themselves are often held liable for the losses of the mortgage insurer. In one case that is not at all uncommon, a man who lost his $410,000 home – and just about everything else in the process – recently received a bill for more than $136,000 from his mortgage insurer for damages and losses to the company associated with his 2009 foreclosure. That former homeowner and many others are just now starting to get back on their feet, making them prime targets for mortgage insurance companies hoping to recoup losses associated with the housing crisis. In that particular case, the homeowner’s $410,000 house sold for about a quarter of that, so the insurance company had to cover the difference between what the bank could get at auction and what remained on the mortgage. Now, the mortgage insurer is hoping to recoup that difference from the former homeowner.
The onslaught of surprise debt collections has likely just begun. According to the New England Center for Investigative Reporting, thousands of homeowners are already being pursued by their former mortgage insurers for losses as great as $200,000 associated with their housing-crisis foreclosures. The process usually begins with letters or phone calls and often ends with lawsuits, judgments, and wage garnishments. Housing advocates say that the process is unfair, “particularly when we live in a world where there were so many bad mortgages made,” said Ira Rheinhold, executive director of the National Association of Consumer Advocates. “It’s incredibly unfair,” he added. Some states have taken steps to prevent these collections; Nevada and California in particular restrict mortgage-insurance debt collection. However, other states simply limit the amount of time that an insurer can begin the collections process, and still others do not regulate at all.
by Carole VanSickle Ellis