Mortgage insurers try to reduce foreclosures
By Holden Lewis • Bankrate.com

Homeowners and lenders aren't the only losers in foreclosure. Mortgage insurers have a lot at stake, too -- and they do a variety of things to keep people in their houses.

In some cases, mortgage insurers kick in cash to help borrowers catch up on their house payments. One company doesn't even ask for the money back.

Mortgage insurers do plenty besides writing checks, though. Their other foreclosure-prevention tactics include:

What is PMI?
Private mortgage insurance, or PMI, is a policy that the borrower pays for, but the lender is the beneficiary. The policy reimburses the lender if it loses money after a foreclosure, or if all sides agree to sell the house for less than the loan balance (called a short sale). Lenders require mortgage insurance on home loans of more than 80 percent of the house's value -- in other words, when the down payment is less than 20 percent.

During the housing frenzy of 2003 to 2007, a lot of buyers avoided mortgage insurance by getting piggybacks -- home equity loans on top of their primary mortgages. And most subprime loans were deemed to risky to be insured. Still, hundreds of thousands of homeowners bought mortgage insurance, and that provides them with another avenue of help.

Lenders lament that delinquent borrowers dodge phone calls and ignore letters. Mortgage insurers have tackled this lack-of-contact problem in a number of ways.

How mortgage insurers have contacted borrowers:

• Calling borrowers directly to negotiate loan workouts. • Sending letters urging borrowers to go to a Web site. • Mailing letters jointly with nonprofit credit counseling agencies.

Each company does things in its own way. MGIC, the biggest mortgage insurer by volume, asks lenders for lists of insured borrowers who haven't returned calls or responded to collection letters. If MGIC employees get ahold of the borrowers, they try to negotiate workouts. "Servicers are quite comfortable with the fact that we're trying to augment their efforts," says Kathy Valenti, MGIC's vice president of loss mitigation.

Mortgage insurer Genworth calls borrowers after they have missed two or three payments. The lender keeps trying to reach the borrower, too. If the lender gets ahold of the borrower first, Genworth stops trying. "And if we get the borrower first, they stop," says Alan Goldberg, Genworth's vice president of homeowner assistance. If Genworth makes contact, it tries to work out a deal with the homeowner.

Loss mitigation procedures
Whether the call comes from a lender or a mortgage insurer or a credit counselor, a homeowner can expect the loss-mitigation call to unfold in stages. The first option is to get the homeowner current by paying a lump sum. If that's not possible, the two sides try to fashion a plan to repay the past-due amount within a year or 18 months. Failing that, they discuss modifying the mortgage -- by changing the rate or the final payoff date or even forgiving some of the debt. If those options can't work, the homeowner will have to give up the house, either through a short sale, or by handing over the keys or by getting kicked out in foreclosure.

Genworth recently introduced its first "foreclosure prevention scorecard," a quarterly report about its loss-mitigation efforts. The insurer worked directly or indirectly with 2,871 borrowers in the first three months of this year, and 2,613 worked out deals to remain in their houses. A little more than half of the delinquent borrowers got repayment plans and 37 percent got mortgage modifications.