While trying to understand the new Internal Revenue Service guidelines regarding the ability to deduct mortgage-insurance premiums, the topic of unemployment insurance surfaced with regard to the Hollywood writers’ strike.
How would the 10,000 members of the Writers Guild of America, along with the related surface industries affected by the walkout, afford to keep their homes if the three-month-old strike continued?
Many union members are not aware that they could be eligible to receive mortgage payments or interest-free loans through a Union Plus Mortgage Program (1-800-848-6466) underwritten by Chase Mortgage. Other benefits, including health care, auto insurance and legal services, are available to AFL-CIO members under the Union Plus umbrella. Bank of America, GE Casualty, MGIC and Genworth Financial are among the other companies that have offered mortgage unemployment coverage.
"Union members should contact their union leaders to see what services are available to them," said Chase’s Jack Thompson, who helps coordinate the Union Plus mortgage program in the Pacific Northwest. "Many members are surprised that what they need already is in place at little or no cost to the member."
Mortgage assistance has evolved from the costly mortgage unemployment insurance premiums first offered 15 years ago. This coverage paid an individual’s monthly mortgage payment, including principal, interest, taxes and any escrow impounds, if the insured became involuntarily unemployed. Payments were made directly to the lender or lienholder, not to the individual policyholder.
Premium costs were high, however, and averaged about 3.5 percent of the monthly mortgage payment. For example, if the monthly mortgage payment were $1,000, the mortgage unemployment insurance would cost about $35 a month. The cost also varied depending on the occupation of the homeowner and geographic location.
The few insurance companies offering this kind of coverage worked through lenders, not individual borrowers. Chase, one of the original lenders, saw the need to reduce costs and reach a larger pool of workers.
AFL-CIO members are eligible for short-term (fewer than 90 days) and long-term (more than 90 days) mortgage assistance one year after taking out a mortgage through the Union Plus Mortgage Program.
Union members who are laid off, disabled or involved in a short-term (fewer than 90 days) strike or lockout can apply for an interest-free loan that would cover up to six months of mortgage payments. Monthly payments begin one month after the last assistance-program payment. If the home is sold or refinanced, the borrower must repay the loan in full at the time of the sale if the proceeds of the sale or refinance exceed the value of the mortgage.
If the strike or lockout extends for 90 days or more, the Union Plus Mortgage Assistance Program provides payment of one-half principal and interest beginning with the first payment after the 90th day of the strike or lockout and continues for three months. For the following three months, the program pays the entire principal and interest payment. These payments do not have to be repaid and are a one-time benefit for one strike or lockout during the entire term of the mortgage.
The term mortgage insurance can mean different things to different people. Besides mortgage unemployment insurance, there is mortgage life and personal (private) mortgage, known as PMI. This can be complex territory, so here’s a capsule explaining the specific kinds of mortgage insurance coverage:
1. Mortgage life is an option for the borrower and is offered each time you take out a loan. If you purchase mortgage life insurance for the full value of your home loan, your home will be paid off if you die. It is typically offered at closing and then again after you sign. Its big selling point is that it permits the surviving spouse to stay in the home without using other assets to pay off the mortgage.
Mortgage life is still available if you did not accept coverage at the time you took out your loan or refinanced. Ask the lender who wrote your loan, or the insurance agent who handles your homeowners insurance, for details.
2. Personal (private) mortgage insurance is the most common of all mortgage insurance — and the most controversial. Because lenders consider borrowers who lack substantial down payments a greater risk than other home buyers, buyers with low down payments must buy private insurance to guarantee their loan payments. If the borrower defaults on the loan and the house is sold for less than the bank is owed, PMI will cover the difference.
The PMI coverage could be deductible on your 2007 federal tax return, so check with your tax advisor.
To get even more valuable advice from Tom, visit his Second Home Center.
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