As job losses mount, mortgage protection plans are hot offerings

WASHINGTON - Is there a rainy day in your personal job forecast? That wouldn't be surprising - not with unemployment rates in double digits in several states, 8.2 percent nationwide and widely expected to hit 10 percent or higher by next year.

Nor would it be surprising if uncertainty about your income is a major barrier keeping you out of the homebuying market this spring. Which is why a previously obscure charitable group based in Washington, D.C. - the Rainy Day Foundation - suddenly is doing a booming business in what's called the mortgage payment protection niche.

According to CEO Rick Del Sontro, Rainy Day is now offering job-loss protection coverage and homebuyer financial counseling through about 100 builders and lenders across the country, plus two large real estate brokerages.

Some of the clients and partners are big: Lennar Corp, for example, is active in 17 states including California, Florida, Arizona, the Carolinas, Illinois and the metropolitan Washington area. Long & Foster Real Estate is the largest independent realty brokerage in the country, according to industry estimates. Keller Williams, whose South Florida affiliate began offering coverage earlier this month, is the third-largest realty franchise firm in the United States.

Here's how the Rainy Day plan works: People buying homes through a participating builder, lender or realty agency can qualify for up to six months of mortgage payments - capped at $1,800 per month in some versions and $2,500 in others - if they lose their job during the two years following their closing. There is no direct cost to the buyer. The insurance coverage is underwritten by Virginia Surety Co. Inc.

Buyers can also receive pre-purchase financial education and periodic post-closing check-ins by Rainy Day counselors. Purchasers may also be eligible to receive "emergency fund" grants from Rainy Day if they encounter short-term financial drains such as unexpected medical bills.

The emergency fund, which Del Sontro estimates will pay out $8 million to homeowners in 2009 - up from $4 million last year - is designed to "bridge the gap" and keep full payments flowing for a month or two following an unanticipated financial problem. If the owners only have $1,000 available in a given month, but their mortgage bill is $1,500, Rainy Day contributes the missing $500.

The emergency grants are not extended to everyone who is in a jam: Rainy Day won't provide extra money when individuals have been financially reckless. Nor will it give grants in divorce or separation situations, or other problems attributable to actions by the homeowners themselves.

Lenders and builders pay $550 or more to Rainy Day for each participant in the plan. The money funds the premiums for the basic insurance coverage as well as the emergency fund.

Rainy Day is hardly the only job-loss protection program in the housing field. Mortgage payment coverage has been available through some insurance companies, lenders and mortgage brokers for years at varying costs. But with unemployment now at quarter-century highs, Del Sontro says "at this point we can't handle all the calls we're getting" from lenders, builders and consumers who want to sign up.

Toll Brothers Inc., a publicly traded luxury builder with 250 projects in 21 states, recently began a major push with its own version of the idea, offering maximum payment coverage up to $2,500 a month for six months over a two-year period. Toll's national marketing director, Kira McCarron, said that although removing the financial fears of potential buyers "is important, we see (the mortgage protection plan) as just one tool in the toolbox" needed to sell new houses in 2009.

From a consumer perspective, job-loss protection - insurance coverage worth up to $15,000 (six months times $2,500 maximum) of monthly mortgage debt - sounds like a no-brainer.

But there are some wrinkles and issues you need to know about upfront:

• Though there's no direct cost to the buyer, that doesn't mean it hasn't been tacked on subtly somewhere in the deal - possibly in the price from the seller or builder.

• There are key exclusions and coverage limits. For instance, the Rainy Day program doesn't kick in for two months after closing. Self-employed persons, independent contractors and active military members are not eligible. There's a 30-day waiting period after you lose your job before the first insurance payment is made.

• The Toll Brothers plan is only available to buyers who use the company's affiliated lender, TBI Mortgage Co. Consumers who know of a forthcoming layoff or "any impending job loss" are ineligible. The program excludes loss of income through voluntary resignations, "willful misconduct," and seasonal shutdowns.

Bottom line: Even when it's "free," read the fine print.

• Write to Ken Harney at P.O. Box 15281, Chevy Chase, MD 20815, or via e-mail at kenharney@earthlink.net.

© 2009, Washington Post Writers Group