Home Insurance Is Causing 4 Major Problems For Mortgage Lenders — Here’s What They’re Doing About It

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Soaring home insurance premiums are causing major disruptions for mortgage lenders. Policy premiums increased almost 9% in early 2023, compared to just 5 to 6% growth in the previous year. And those jumps are even more prone in certain states, including Texas (15% increase) and South Carolina (17%). Not only are higher prices impacting mortgage eligibility, but carriers in an increasing number of states are discontinuing new policies altogether. 

In Matic’s recent survey of mortgage lenders, 79% of respondents said that over the last year, home insurance has become more of a problem than ever before.* But there are solutions you can incorporate to create a more seamless underwriting and closing process. 

Find out four common issues faced by mortgage lenders, plus proactive solutions so you can efficiently close a loan.

1. HOI causes DTI issues for 68% of lenders 

According to Matic’s recent survey, lenders have seen an increase in borrowers whose debt-to-income ratio becomes too high to qualify for the original mortgage once the cost of insurance was factored in. 

For many borrowers, that has meant having to downsize to a smaller mortgage in order to afford those higher homeowners insurance costs. 37% of mortgage lenders reported clients who had to opt for a less expensive home. And in a worst case scenario, it may mean completely walking away from homeownership for the time being. In fact, many loan officers may have to walk away from one to two loans per month because of excessive DTI. 

lender quoteBut there are workarounds to help identify and resolve this issue earlier in the mortgage process. Lenders can provide more in-depth preapprovals at the beginning of the conversation with borrowers. It’s also important to accurately calculate the customer’s front-end DTI as part of the preapproval process so that it includes all home-related costs included in their monthly payments.

Once you’re in the underwriting stage, use a digital insurance marketplace like Matic, which offers more options to help find lower cost policies — even in low-supply areas. On average, Matic customers save $546 per year.

2. 58% of lenders experience closing delays due to HOI

Another frequent insurance-related problem is that loan closings can be delayed because of the time it takes borrowers to secure a homeowners policy; in fact, nearly 60% of lenders are facing this issue. While in the past lenders have likely experienced slowdowns from borrower procrastination, there are several new contributing factors that are compounding the problem. 

First, customer service wait times at insurance carriers are getting longer, especially in areas where larger carriers have exited completely. In California, a regional carrier experienced an incredible 500% increase in inbound calls after State Farm announced they were exiting the state completely. And with only 10 home insurance carriers allowing customers to bind their home insurance policies online, it’s hard to find a workaround for long wait times.

It’s clear that borrowers are not just having trouble finding the best homeowners insurance policy for them; it’s hard to even get a quote in the first place. Integrating a digital insurance marketplace with a strong carrier network reduces the time it takes for borrowers to research their options and finalize their policy. Plus, they can compare multiple carriers in one place, so they don’t have to spend time calling individual insurance companies one by one. 

Matic’s digital shopping experience takes just minutes. It can save hours or even days, which is crucial in the time leading to closing.

3. 37% of mortgage teams experience more internal frustration 

Getting the proper insurance documentation in place before closing has also caused increased frustration and delays for mortgage lenders and their teams. Even after getting in touch with a support team, a high level of service isn’t guaranteed. 

lender quoteBy opting for Matic’s digital insurance marketplace, many administrative requirements become part of the process. You also get constant visibility into the borrower’s progress with getting a policy. That extra insight lets you anticipate closing times without having to constantly follow up with the borrower. Plus, Matic has over 100 licensed insurance agents available to answer questions for you or your borrowers.

Customer surveys from Matic also reveal a higher level of customer sentiment towards their lender when provided with this opportunity to simplify the HOI search process. In other words, you’re already executing a long-term customer retention strategy. 

4. Available HOI policies have dropped by 35% 

With states trying to rate cap insurance premiums to help homeowners, some carriers have bowed out of high-risk states completely. An incredible 74% of borrowers expressed to their lenders that it was either difficult to find coverage at an affordable price or they had limited options available to them. But this trend is unsurprising based on the fact that there has been a 35% decrease in available policies per homeowner. 

Here’s what that looks like in real life. In March 2022, a typical person shopping for home insurance from 10 national carriers would have just over 6 policies available to them. In 2023, the same applicant would now have just 2.87 policies available. This trend is impacting mortgage lenders’ ability to close. In fact, 79% of survey respondents indicated that they have gotten more involved in the homeowners insurance process in the last year due to the difficult market.

While homeowners insurance availability issues have been an ongoing issue in Florida, other states are beginning to experience the same problems, including California, Georgia, South Carolina, New Jersey, New York, and Arizona. Having access to carriers in each of these areas has become increasingly important. 

Matic is an established digital insurance marketplace that has a comprehensive mix of carriers covering all 50 states. Our network of more than 50 carriers helps lenders stabilize the search for quality insurance carriers across the country.

Not only is this more convenient for your borrowers, it also helps them feel more comfortable with their decision. 

Both borrowers and lenders are seeing increased difficulty in today’s mortgage environment. Matic offers a better way to navigate homeowners insurance to help lower costs and create a more efficient process leading up to closing. 

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