Mortgage protection in case times get tough

DALLAS — Melissa Sparks is a bit nervous about making the biggest investment of her life during the worst economic crisis since the Great Depression. So she plans to pay a one-time fee of $525 for a security blanket when she buys her first house.

A program offered by her lender, Service First Mortgage, promises to pay up to $1,800 in mortgage payments for six months if Sparks is laid off from her surgical-coordinator job within the first 24 months of the mortgage.

"It's a small price to pay if something should happen to my job," said Sparks, 30, of Garland, Texas. "It's one less thing to worry about."

Other companies are using innovative marketing to reduce the risk for cash-strapped consumers while boosting sales as customers worry about the recession

Hyundai will buy back cars from new owners who get laid off, and General Motors is considering copying the program. Some companies offer job-loss insurance and similar protection.

The national unemployment rate stands at 8.1 percent — the highest in 25 years — and many consumer prices are rising. Even the rich are cutting back.

Creating strong value

"Companies doing this are obviously being more aggressive," said David Strutton, a professor of marketing at the University of North Texas. "It's all about creating a strong value proposition for prospects."

Some companies that sell stand-alone job-loss insurance policies, such as Genworth Financial, provide it free as part of mortgage insurance on loans made through lender partners.

"What we're trying to do is keep people in homes," said Chris Antonello, senior vice president of marketing for the Richmond, Va.-based Genworth's U.S. mortgage-insurance unit.

Genworth has started notifying new borrowers about the coverage and asking them to register, as they would for a product warranty, he said.

Genworth's coverage pays up to $2,000 per month of mortgage principal, interest, taxes and insurance for up to six months if the borrower is laid off. The company has seen more job-loss insurance claims in the last few months, Antonello said.

Mortgage protection

Some companies don't market layoff protection as insurance. Service First Mortgage calls it a mortgage-protection program. Producers Financial Network's PayCheck Guardian is membership-based.

Both include additional services, such as financial counseling, grants for financial emergencies or identity-theft protection.

"If it's just a freebie on your existing policy, I don't think you have to worry about it," said Gail Hillebrand, senior attorney for Consumers Union, publisher of Consumer Reports. "Generally speaking, single-event insurance is not a good buy. The question is whether you should pay for it or put (the money) in your emergency cash cushion."

Hillebrand also cautioned consumers to look at the fine print on any contract — whether it's insurance or not — for exceptions such as not being eligible if you're a temporary worker or if you receive severance pay. "If you meet all of those things, then it's a personal choice," she said.

Whether or not they're technically insurance policies, layoff-protection programs operate in a similar way. They typically don't kick in for 60 days (four months for PayCheck Guardian), and there's a 30-day waiting period before funds are paid.

Exclusions include people who are self-employed, independent contractors or military; those who have been fired or quit; or those who are out of work due to a strike or lockout.

PayCheck Guardian provides three stand-alone insurance-backed product options: Pay $50 a month for $750 in monthly coverage if you lose your job; $60 a month for $1,000 in coverage; and $70 a month for $1,500 in coverage.

Customers must be employed and make payments for four months to collect benefits, which last four months.

PayCheck Guardian's customer base has increased monthly since its September launch, said John Hartline, president of North Carolina-based Producers Financial Network. He said most customers are from the banking and financial industries.

Linda Davidson, senior loan officer at Service First Mortgage in Richardson, Texas, said that since she began offering the WorryFree Mortgage program last month, she's received enough interest to launch a Web site (myworryfreemortgage.com).

Rainy Day Foundation, the Washington, D.C., nonprofit behind WorryFree Mortgage, provided about $4 million in financial help nationwide last year, or twice as much as in 2007, said Senior Vice President Robert Clute. He projects nearly $6 million this year.

"A lot of our clients are taking everything they have to get into a home," Davidson said. The program gives them some "peace of mind," she said.