If you’ve talked with members who can’t make their mortgage payments because they’re temporarily disabled and can’t work, you might have heard comments such as, “I thought I had insurance through work for this,” or “I thought private mortgage insurance covered this.”
It’s heartbreaking. And it’s predictable. Just look at the variety of products and programs members might believe will help them should they fall into this predicament:
Mortgage transactions are complex enough without expecting members to understand the key differences between the items on that list.
So at some point before closing, ask members how they’ll pay their mortgage should a breadwinner lose his or her paycheck. Prepare to clarify key aspects of these products and programs, such as:
►PMI protects lenders, not homeowners.
►Workers' compensation applies only to work-related illness or injury, which is rarely the cause of long-term disability. A survey by the Council for Disability Awareness found fewer than 5% of the workers who claimed disability benefits from 2009 through 2013 also received workers’ comp benefits.
Also, many states have significantly rolled back workers’ comp benefits, according to a 2015 analysis by ProPublica. Their findings include:
►Short- and long-term disability coverage generally applies to disabilities unrelated to work. But it’s easy to misunderstand how much of one’s pay these coverages actually replace, when they kick in, and for how long.
That’s why it’s important for members to double-check with their employers (unless they’ve purchased private policies) about this type of coverage.
Members might be surprised to learn the limitations of this coverage. Worse, they might discover they don’t actually have one or both of these coverage types.
►SSDI denial rates have climbed in each of the last six years, topping 70% in 2013, according to the most recent statistics. And these claims typically take a long time to process—time in which an unpaid mortgage could go into default.
►Mortgage payment protection products vary, but in general, they have some key advantages:
Helping your members protect their ability to pay their mortgage benefits the members and your credit union’s bottom line. Initiate a brief conversation about involuntary unemployment and disability protection before the mortgage closes, rather than facing a much more difficult conversation later.