As spikes in premiums derail deals, how can you avoid risks?

by David Kitai18 Dec 2020

While mortgage professionals have spent the year grappling with record volume, painfully slow closing times, and the challenge of a pandemic, they may have missed one looming risk to their future business. Reinsurance rates, which have stayed low for around the last 10 years, are starting to climb, especially in geographies exposed to hurricane or wildfire risk, resulting in higher homeowners’ insurance premiums. This means the previously low insurance premium estimates mortgage pros could count on when setting up a loan for a client can come back shockingly high, potentially derailing the whole deal.

To make sense of this looming insurance issue, MPA spoke with Garrett Mitchell and Todd Beall (both pictured), the heads of sales and marketing respectively at Insurance Express. They explained why mortgage professionals need to get ahead of the insurance issue, get a better education on the risks insurance could pose to their deals, and partner with the right insurance agents. They outlined, too, which questions mortgage professionals need to ask when shopping for insurance partners.

“A mortgage professional may throw an insurance estimate of $1,200 per year to their underwriter and the borrower may qualify based on that number,” Mitchell said. “But when it comes down to securing the actual policy it’s coming back at $4,000 a year, double to triple what was estimated.”

Mitchell and Beall explained that this gap in premiums could be the difference between a borrower qualifying or not.

“On the mortgage side we’ve seen this time and time again, if the numbers are tight that can make or break your loan,” Beall added.

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Mitchell and Beall stressed that these premium increases, especially in “catastrophic states” can have a serious impact on a borrower’s debt to income ratio, resulting in headaches, readjustments, and failed deals.

For all the risks of these insurance issues, Mitchell and Beall also see opportunity for mortgage professionals to prove their value to their clients. They explained that leaving the insurance process to an uneducated consumer could lead that borrower to make both the wrong insurance decision and potentially go rate shopping for a new loan officer. They highlighted that an insurance partner with a roster of products on offer can bring that insurance premium way down again.

What’s crucial, they explained, is that mortgage professionals choose an insurance partner that can work with speed. Given how long closings are taking now, and given client expectations of near-instantaneous service, Mitchell and Beall stressed that mortgage pros can’t turn the process around speedily on their own and they will need the help of a solid insurance partner to make it work.

In addition, the duo offered a few key questions mortgage professionals can ask to assess whether a potential insurance partner is right for them. The first is asking how many carries they represent. An insurance agent representing five or six carriers won’t be as competitive or dynamic, they say, as one representing 50. Access to options and creative solutions is key.

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Another key question to ask is what an agent’s average turnaround time is. Considering the time pressure loans are currently under, if any partner is faster than average, they’re likely a worthwhile partner to have.

Finally, Mitchell and Beall said that mortgage pros need to ask a prospective insurance partner if they have a dedicated team for working with mortgage and real estate professionals. Given the complexity of the clients and loans so many mortgage pros work on, it’s essential that they partner with insurance agents who understand the mortgage business and the different solutions mortgage professionals need to secure a deal for their clients.

Variety, flexibility, and client service are key when looking for that insurance partner.

“On the mortgage side, when you’re trying to do a quadplex or a triplex, you want to have an independent agency that has the ability to write that just as you’d want them to be an agency able to write an investment property or an LLC, or a condo, or something for a foreign national that’s rented out six months out of the year,” Mitchell said. “You’re not just always dealing with one type of property, you’re not just dealing with single family homes all the time. You want to have a partner that has the ability to write really anything, at any time, during the current market.”