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mortgage impairment insurance

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 "non-required 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.


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