Learn John Meadows’ perspective on the current state of lender-placed insurance in today’s mortgage industry; read his article in Servicing Management.

As the mortgage industry navigates through the well-documented subprime and credit problems, it is important to draw distinctions from the last real estate down cycle.

During that previous period of economic stress, the mortgage market was fragmented, and the secondary investors had only begun to emerge. Lenders employed simplistic insurance programs to protect their mortgage assets, with the predominant products consisting of mortgage-specific endorsements to a general liability policy or a blanket property policy covering all portfolio exposures.

Specifically, limitations in tracking a portfolio restricted lender-placed insurance programs to providing protection against major catastrophic risk rather than all perils that threaten the value of each mortgaged property.

The savings and loan crisis of the 1980s impelled the mortgage industry toward its current state. Noteworthy events of that era included multiple consolidations and a newly flourishing secondary market, largely influenced by government-sponsored enterprises, which increased servicer loan volumes but squeezed per loan margins.