Home Loan Insurance In United States and Bank of America

As the mortgage unit of the Bank of America, the Bank of America Home Loans has been supporting prospective home buyers with loans. However a recent survey indicated that bad home loans contribute no less than $1.3 billion belonging to the Bank. Even worse; during the previous quarter the bank sustained a loss of around $7.3 billion due to bad home loans. For the entire year 2010, the loss was calculated at $2.2 billion.

Bad Mortgage without Insurance Coverage Reasons for Banks Failure

Bank of America still suffers from the fallout in the mortgage market and facing a $2 billion expense on impairment charges in home loans as well as insurance. One of the major reasons for such losses and downslides were that the loans dealt out were not substantially covered with insurance plans. Had there not been the home loans and insurance related losses, the bank could have made a profit of around $756 during the said period. Only saving grace for the bank was the bail out funds of $45 billion received from the Federal Government that was repaid later.

Essence of Home Loan Insurance

Buying a house could be the high point in anyone’s life since it is the greatest asset one can have. However, the most coveted of the assets comes at huge price and could turn out to be a long term liability for the home buyer. Some of the exigencies could be –

• Untimely expiry of the borrower;
• The borrower becoming insolvent; or
• Such borrower becoming incapacitated.

In such cases the burden of debt will pass on to the frail shoulders of the successors in interests whether they have the capability to repay or not. Such burden combined with the loss of breadwinner of the family could be a bit too much to sustain and the family might end up on the road losing their most valuable property, the home. In such cases home loans insurance coverage could come up very handy.

Consequences of Failure to Repay Loans

Failure in repayment of the loan could have serious consequences for the borrower or the successors to such borrowers.

• Failure to repay loan may result in bank repossessing the property and evicting the occupiers.
• Usually litigation in such case won’t achieve any favorable results for the borrower.
• Home loans insurances are meant to cover such risks as well as the mortgage. While they are like simple plans, unlike the simple term plans they always offer a reducing sum assured.
• Coverage amount reduces with the consequential reduction in the amount that is owed to the lender by the borrower.

Types of Insurance Coverage

Most widely used types of home loan insurance that are also recognized by the Bank of America are –

• Single premium policies where lender funds the amount and is to be repaid with the EMI by the borrower.
• Simple term insurance plan large enough to cover the liabilities and replacing the income.

In absolute terms however, the home loan insurance would always be cheaper in comparison to the term insurance plan.