By Tom Farmer and Peter Milewski, MassHousing
MIPlus™, MassHousing's innovative mortgage insurance that provides borrowers up to six months of unemployment protection, reached the 10th anniversary of its launch in June. An analysis of the program shows it has successfully kept hundreds of homeowners in their homes through difficult times.
Mortgage insurance is often required of homebuyers making a downpayment of less than 20% of a property’s purchase price. Traditionally, it is paid for by the borrower but only benefits the bank in case the loan cannot be repaid. For most borrowers, it was a necessary evil, allowing them to purchase a home with a low downpayment, but providing little in return.
MIPlus protects the lender like traditional mortgage insurance, but it also offers the borrower unique protection. If the borrower loses their job, MassHousing will make principal and interest payments of up to $2,000 per month for up to six months until they become employed again.
Over the past 10 years MassHousing has paid out $3,935,900 in benefits to 826 borrowers in the form of 4,127 individual monthly benefit checks. The average length of unemployment benefits was five months and the average MassHousing benefit was $953 per month. Of the 826 borrowers who were unemployed and received MIPlus benefits, 700 are still in their homes.
"The success of MIPlus over its first 10 years has exceeded even our optimistic expectations based on the fact that we have kept seven out of every eight borrowers who used MIPlus in their homes after a job loss," said MassHousing Executive Director Thomas R. Gleason. "Before MIPlus, the only one who benefited from mortgage insurance was the lender and there was no benefit for the consumer. When we created MIPlus we wanted to continue to protect ourselves as a lender but we wanted to give a benefit to the borrower at no additional cost that could really help them in the event they became unemployed."
Being able to offer MIPlus with no additional cost to the borrower was made possible under a premise that every foreclosure and mortgage insurance claim prevented would fund benefits for approximately 12 borrowers who would be unemployed for five months.
While it is difficult to say how many of the 700 borrowers still in their homes would have been at risk of losing them had they not enjoyed the benefits of MIPlus, preventing just 100 from losing their homes offset the cost of providing unemployment benefit protection. Actuaries have calculated that during the height of the recession and mortgage crises, as many as half of those 700 borrowers would have been at high risk of losing their homes.
There are ranges of estimates from recognized experts that the economic impact of a single foreclosure can be anywhere from $200,000 to $400,000. This is based on the original cost/value of the property, values of neighboring homes and the population density in the area immediately surrounding the foreclosed property.
The costs include a combination of direct financial losses suffered by the homebuyer and mortgage holder; declining property values of neighboring properties; and the increased financial burdens on local government caused by reduced tax revenue and increased municipal expenditures linked to higher crime, arson and municipal work in these distressed neighborhoods.
Based on these numbers, MIPlus may theoretically have provided a positive economic impact of more than $200 million to individuals, financial institutions and state and local governments.
"Keeping borrowers in their homes is the ultimate goal and MIPlus has been very effective in helping us do that," said Gleason.
MassHousing created its own Mortgage Insurance Fund in 1988 and to date has insured 24,000 loans for $4.1 billion and currently has $1.6 billion in insurance in force.
As a result of a re-insurance agreement, the capacity of MassHousing's MIF has increased, and some lenders are now utilizing the fund to insure non-MassHousing loans that meet certain affordability criteria.