Hot tip: add an insurance broker to your origination team

The wildfires in California have exacerbated an already difficult situation for new and existing homeowners. According to Consumer Watchdog, an advocacy group, State Farm has asked to increase premiums in California, citing the wildfire. It also said the state's insurance commissioner is letting insurers pass a surcharge for losses to the FAIR plan onto consumers.

This is on top of what has already been increasing costs for mortgage borrowers to obtain homeowners coverage, which is a requirement of the secondary market.

Worries are that the rising costs could impact homeowners to the point where they could default on their mortgages.

This makes it all the more important for mortgage originators to include an insurance broker on their team of experts, Travis Hodges, managing director at Viu by Hub, said. Insurance has become a larger slide of the monthly payment pie for consumers. It is no longer an afterthought in the process.

National Mortgage News recently spoke with Hodges about why mortgage originators need to be more proactive for their clients when it comes to homeowners insurance.

Hodges' responses have been edited for length and clarity.

On why an agent needs to be a part of the originator's team

Hodges: It's multiple hundreds of dollars, and obviously the interest rates put more pressure on what the consumer can afford. Our advocacy is somebody that can find the best value for you and your family while buying a house without compromising protection of that house, and clearly, lien holders have that same interest as well.

On rising insurance costs in areas recently hit by natural disasters and could that lead to defaults

Hodges: I've seen some of the metrics, not even just the mortgage defaults, but how many people are pulling out of the home contract process. I think that is at an all-time high. Once you get the contract is when you start shopping for insurance and the belief is that when people see how much the insurance protection is and the financial loan that that requires, that's more than [they] can absorb. The scope and the breath of this impact is changing geographically right before our eyes. People would not have associated Asheville, North Carolina as problematic for hurricanes, and we've seen the damage and devastation, and it really made a lot of people, whether it's in insurance or the mortgage lender, reevaluate their exposure to the respective assets that they're trying to protect.

The issues driving the changes

Hodges: Insurance carriers are dealing with a lot of things that are problematic. They're dealing with frequency issues, and also severity. The things that used to be able to be rebuilt for $5,000 now cost $12,000. When you combine more events, and those events are more expensive, it's a really challenging market, and the insurance companies have to pass those expenses onto the consumer through new insurance premiums, which hurts the consumer.

How can insurance agents work with mortgage lenders and mortgage servicers?

Hodges: You need to find somebody who can be an advocate for both parties to make sure there is adequate protection. Because usually what happens is that you can find better value. You just have to be able to shop for it. What you need is somebody that has the ability to shop on the behalf of the consumer, but not just about price. There's a delicate balance, because we all know the saying, you get what you pay for. If you search for the cheapest insurance company, then you should probably expect to get the cheapest type of claim payments. 

What the insurance broker can do

Hodges: A broker can suggest ways to the shopper that allow them to maximize their protection while reducing how much it might cost them. The higher that you make your deductible, the lower the premium becomes, and that's a very easy way to make it more manageable. The other thing is, if you have multiple things that you want to protect, like your auto or your home, one of the biggest ways to reduce the premium is to combine it with the same company. Many times they give what they call a multi-policy discount, and if you put your insurance together versus one with one company one with the other, I think consumers are often surprised of how much of a savings they have access to. But you need somebody in the space to be able to inform them of that.

On working with agents to ensure that borrowers are informed that they need to have a certain level of coverage or that a policy is lapsing?

Hodges: Anybody that has an insurance relationship needs to make sure the communication is ongoing, not just when they're trying to sell somebody a policy. One of the things that we do that a lot of brokers and a lot of agents do, we do annual reviews with the consumer to make sure that the lender is still the right lender [on the policy]. If there's a refinancing that that lien holder information is properly updated. In today's world, whether it be email, texting or phone call or traditional mail, there's too many communication vehicles to engage with the consumer, to let there be a lapse where no one knows. When someone's shopping, it's not just looking at the price but also asking, "Hey, what's the communication process? What's the follow up process? How often am I going to hear from you? What does that look like so that protects the borrower and the lender at the same time?"

On rising home values, whether organic or through renovation affecting insurance costs

Hodges: It's two-way communication, because if somebody has a relationship with a broker, that should be part of the annual discussion. So when [the homeowner] gets updates, remodels his kitchen, puts on a new roof, whatever that might be, to improve the value that's discussed and accounted for. If there is not open communication between the client and the [insurance] broker, then there is a chance someone's going to be under insured and potentially have an unpleasant surprise one day. But it comes back to communication. I think that communication responsibility falls on the broker, not the client. The need for open, two-way communication has never been more important for the reason that you're talking about.

Have the California wildfires added urgency to the need for mortgage loan officers, no matter where they are located, to work closely with an insurance broker?

Hodges: Absolutely. It underscores the enormous crisis facing carriers, states and consumers alike, as we collectively grapple with the ongoing, devastating aftermath of such extreme weather events. As insurers reassess risk, homeowners face limited options, rising premiums and, in many cases, reduced access to comprehensive coverage. Without insurance, securing a mortgage becomes nearly impossible. Mortgage loan officers should work hand in hand with insurance brokers to help clients proactively navigate the insurance landscape, ensuring they secure the coverage they need while simultaneously obtaining a mortgage. This not only streamlines the process but gives homebuyers a clearer, more realistic picture of their housing costs, helping to prevent last-minute surprises that could derail a deal. 

On Fed Chairman Powell's recent comments about insurance availability

Hodges: The biggest takeaway is that homeowners can't afford to be reactive. Insurance challenges aren't just a coastal or wildfire-prone issue. They're reshaping the entire housing market. As coverage becomes harder to secure, regions at risk of becoming uninsurable also face becoming unfinanceable. Now more than ever, proactivity and collaboration between mortgage lenders, insurers and regulators are critical. Consumers need education on their options, and strategic guidance to navigate the changing landscape. By working with an insurance broker throughout the mortgage process, buyers can anticipate costs, explore coverage solutions and make informed decisions, ensuring homeownership remains accessible both now and as the market continues to evolve.