Mortgage protection programs can’t escape shadow of scammers

When we closed on our recent refinance — a move we swore we would never again make — several offers for housing services arrived in the mail. Not only was I surprised by the number of companies that acquired our physical address but I was also startled that so many used still “snail-mail” marketing.

One of the cards, a yellow rectangle I initially mistook as a wayward index card because of one blank side, offered Mortgage Protection Insurance, a vague term that can be a specific coverage or an all-encompassing program depending upon the company offering the insurance and the needs of the borrower. Always read the fine print, ask questions and make sure you understand the service or services you are receiving.

For example, a mortgage protection program can cover loss of job, disability or death. Some companies only offer coverage for “involuntary” loss of job, yet label the coverage mortgage protection. This coverage can be extremely beneficial, especially for individuals in high-risk industries like construction (roofers, framers).

Payments will also go directly to the mortgage company if the policy pays upon job loss or disability but only for a specific period. Payments typically run for two years. Disability or job-loss policies usually pay only the principal and interest on your mortgage. There is often a waiting period before payments begin.

Depending upon the region, mortgage protection coverage can mean only accidental death insurance. If you purchase mortgage protection insurance that pays off your mortgage when you die, the insurance company will send a check directly to your mortgage company, leaving your heirs with a home unencumbered by a mortgage.

When mortgage protection is offered as a result of a new loan, the coverage often is easier to obtain compared to a homeowner seeking disability insurance on his own. That’s because some companies boast a “guaranteed acceptance” – fill out the application and get the coverage regardless of health or job. For some reason, the potential for bulk sales typically brings fewer personal questions.

For many years, first-time buyers in California received all-encompassing mortgage protection insurance free of charge through a program partially funded by the California Association of Realtors. CAR felt its investment, reported at more than $1 million, would not only help to instill confidence in an iffy and expensive market but also relieve the fear of lost revenue from job layoffs. (Remember when home building skidded to a halt?).

For example, homeowners who lost their jobs or became accidentally disabled were eligible to receive up to $1,500 per month for up to six months to help make their mortgage payments. A qualified co-buyer could also participate for a reduced monthly benefit of up to $750 per month for up to six months in the event of a job loss or disability. The program also offered a one-time $10,000 accidental death benefit.

Like many helpful services, scam artists jumped on the mortgage protection idea, especially when housing crashed a few years ago. The problem with these so-called companies is the same as many ‘debt relief’ firms. They do not really exist nor provide the service advertised.

According to the National Association of Realtors, these scammers purchase address lists of recently purchased homes and refinanced loans and send out mailers en masse, advertising great prices on mortgage protection policies. The typical warning signs to watch for are:

• A request for in-depth personal information.

• No known telephone number or street address.

• A bogus telephone number or address. (You should always check out the information before promising any money to a company.)

• It lists a false license number or none at all (consumers can verify the license number at a state’s Department of Insurance.)

• It asks for payment for a service you can do for free.

If you are interested in acquiring a mortgage protection policy, make an inquiry to an insurance company. A good place to start is the company that provides your homeowners insurance or your auto insurance. The company that sent you the yellow card offering mortgage protection might offer a terrific service but do your research before you sign.

Unfortunately, the bad guys continue to hover around all that is good.