Record Number of Foreclosures Create Opportunities for Wholesalers

OLDWICK, N.J. August 11 (BestWire) -

The skyrocketing rate of U.S. foreclosures has provided endless headaches for lenders, but the failures are actually creating opportunities for insurance wholesalers.

RealtyTrac, an online marketplace for foreclosure properties, reported 220,000 homes taken by bank repossessions in the second quarter this year - nearly triple last year's amount during the same time. About 740,000 foreclosure filings were reported in the United States - about a 14% increase from the previous quarter and a 121% increase from the second quarter of 2007, RealtyTrac said.

North America's largest insurance wholesaler, Burns and Wilcox of Farmington Hills, Mich., is about 23 miles from Detroit, an active foreclosure area. David J. Price, executive vice president and chief underwriting officer for Burns and Wilcox, said that until the banks receive the title, the home and its inherent risk belongs to the mortgagee and a homeowners policy doesn't apply.

Vacant home insurance has been a big product for Burns, Price said.

"Carriers have responded well to the need. It is now readily available and very competitive."

Burns and Wilcox wrote about 10,000 vacant property policies last year.

Already this year, the company has written about 7,000 policies, said Price, who added that the statistics do not specify whether the properties were foreclosed but the increase in this sector of business is evident, Marcus McCue, vice president of Guardian Mortgage Co. in Dallas, said his company has a blanket insurance policy through an insurance wholesaler.

"Properties can be added and subtracted to this policy as needed," McCue said. "We do not secure separate insurance policies for each foreclosed property. We simply add it to the blanket policy."

The original homeowner is billed for the forced insurance and by all accounts, it could be many times more expensive than what the homeowners policy was in order to cover the varieties of risk associated with an empty home.

Forced insurance is purchased by mortgage lenders on properties "when the owner has not provided the mortgage company with proof that the property is insured adequately," said Hanna Ogle, personal lines manager of the Watkins Insurance Group's Austin, Texas branch. The mortgagees obtain enough property coverage to satisfy the loan amount on the property. Generally this coverage is obtained through some insurance wholesaler. It would only reimburse the mortgage company for their loss of collateral, Ogle said.

Price said theft of copper from empty houses is a "huge issue" and one that can create tens of thousands of dollars in damage. Unsupervised pools are another risk, he said.

"The product is billed to the homeowner, who is on the hook to the mortgagee just the same as if he still lived there (in the home)," Price said.

Steve Brooks, owner of Steve Brooks Insurance Services in Westlake Village, Calif., said vacant homes are a big insurance risk as the potential for them to be vandalized rises.

Brooks said he recently received calls from insurance carriers wondering if their clients remained in their homes. Companies are receiving notices of foreclosure directly from the lenders, he said. If the homeowners are not located, the insurer issues a 30-day notice of cancellation citing a "substantial change in hazard."

The forced policy does not cover the homeowner at all, leading many agents to urge homeowners not to let their policies lapse.

"The policy only covers the lender's interest in the property," said Christine Chipurni, senior vice president of Wells Fargo Insurance Services of New York. "A homeowner can suffer a significant loss if they have a low outstanding balance versus the total value of the property."

When it comes to the impact of foreclosures on homeowners writers, Sam Miller, executive vice president of Florida Insurance Council, said they haven't been an issue, as did the California Department of Insurance.

California and Florida are two of the hottest spots for foreclosures.