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.