Glossary

Mortality is the relative incidence of death.

The mortality table is a table showing mortality rates for each age. Mortality rates shown in such a table are based on actuarial analysis and depict the probability that a person of the age for which a rate applies will die during the following year. Insurers use mortality tables to determine premium rates and establish loss reserves.

A mortgage-backed security is a security, typically a bond, that produces periodic cash flows, using repayments from mortgage loans to fund such payments. Between 2003 and 2006, unusually large numbers of subprime mortgage loans were pooled, packaged, and sold to investors in the form of bonds, which became known as mortgage-backed securities. In return for paying an up-front principal amount, these investors received periodic payments (usually quarterly), in the same manner as the holders of a traditional bond. By 2006, approximately 63 percent of all subprime loans were being sold and packaged in this fashion. When a wave of subprime mortgage loan defaults began in 2007, the value of these mortgage-backed securities began to plummet. This was because the cash flows that "securitized" the bonds (i.e., the periodic monthly payments from the subprime loans) were substantially lower than anticipated, given the numerous loan defaults. This, in turn, caused a shortfall in funds available to pay the interest mandated by the securities, bringing with it massive numbers of defaults by the issuers of the securities. Eventually, the securities holders brought literally hundreds of class action lawsuits against the directors and officers of the banks that made the subprime loans and the investment bankers who packaged the loans into securities.

A mortgagee is a financial institution that is the lender in a mortgage, holding a financial interest in the property. Such an institution loans money to the borrower, who is known as the mortgagor. To limit its risk, a mortgagee creates a priority legal interest in the mortgaged property's value, allowing it to seize such property if the mortgagor defaults on the mortgage. Insurance policies that provide coverage on buildings—homeowners insurance policies and commercial property insurance policies, for example—typically include a mortgage or mortgageholders provision addressing the rights of a mortgagee that is named in the policy with respect to the coverage on the building in which the mortgagee has a legal interest.

A mortgagee clause is a property insurance provision granting special protection for the interest of a mortgagee (e.g., financial institution that has an interest in the property) named in the policy, in effect setting up a separate contract between the insurer and the mortgagee. It establishes that loss to mortgaged property is payable to the mortgagee named in the policy and promises advance written notice to the mortgagee of policy cancellation. It also grants continuing coverage for the benefit of the mortgagee in the event that the policy is voided by some act of the insured (e.g., arson). In this situation, the clause specifies the obligations of the mortgagee in continuing coverage. The mortgagee would be expected to notify the insurer of any changes in ownership, occupancy, or exposure; pay any due premium; and submit a signed, sworn statement of loss within the appropriate time frame. Without the protection of the mortgagee clause, financial institutions would be unlikely to loan the large amounts of money necessary to purchase homes, office buildings, or factories.

Mortgage impairment insurance is specialty property insurance for mortgage companies that provides coverage for the lender's interest in mortgaged property in the event of uninsured or underinsured damage to the property—typically, because the borrower has failed to maintain the required property insurance and name the lender as mortgagee. Mortgage impairment insurance usually is written on independently filed forms, and there are many variations in coverage from one form to another. The policy may be written to cover loss due to required perils only (that is, only those perils for which the borrower is required to maintain insurance on the mortgaged property—fire, explosion, etc.) or extended to cover loss due to certain "nonrequired perils" (such as earthquake) as well. Often, mortgage impairment policies also provide liability insurance for certain liability loss exposures of the lender that are associated with servicing the mortgage, such as liability for mishandling of escrowed insurance premiums and causing a lapse of the borrower's coverage, failing to pay taxes on behalf of the borrower, or failing to identify mortgaged property located in a flood zone and to require the purchase of flood insurance. Mortgage impairment insurance is written primarily for mortgage servicers but is also purchased by mortgage originators that need to comply with federal (Federal National Mortgage Association (FNMA) or Government National Mortgage Association (GNMA)) or other lender requirements. Also sometimes referred to as mortgage errors and omissions (E&O) insurance or mortgageholders E&O insurance.

Mortgage insurance refers to a life or health insurance policy intended to pay off the balance of a mortgage upon death or to meet payments on the mortgage in case of disability.

Mortgage redemption insurance refers to a monthly reducing (decreasing term) life and/or disability insurance policy purchased by a mortgage lender or title holder to repay the balance on a mortgage if the borrower dies or is disabled before full repayment of the mortgage.

A mortgagor is the borrower in a mortgage, either a homeowner or another entity. The mortgagor borrows money from the lender (mortgagee) to purchase real estate. If the mortgagor defaults on the loan, the mortgagee's terms allow the mortgagee to seize the property.

Most favored venue wording is a provision found within some directors and officers (D&O), professional, and employment practices liability (EPL) policies stating that with respect to the insurability of punitive damages, the law of the jurisdiction most favorable to the insurability of punitive damages will apply, provided the jurisdiction meets one of the following criteria. It is the jurisdiction where (1) the punitive damages were awarded; (2) the act giving rise to the punitive damages award occurred; (3) the insured is incorporated or maintains its principal place of business; or (4) the insurer is incorporated or maintains its principal place of business. When this provision is included within a policy that affirmatively covers (or does not exclude) punitive damages, it provides assurance that such damages will be covered by the insurer, despite the fact that covering punitive damages is contrary to law in certain jurisdictions (e.g., California). Most favored venue wording merely modifies the existing level of coverage for punitive damages already provided by a policy. Such wording does not provide coverage if the policy otherwise excludes punitive damages. It is also important to recognize that the validity of this provision has not been tested in court.