To sell homes, builders offer mortgage unemployment insurance

LOS ANGELES -- Free granite countertops, swimming pools and landscaping aren't going to convince anyone who's afraid of losing a job to buy a home. But what about a promise to pay your mortgage if you get laid off?

With the unemployment rate at a 26-year high and home sales still in the dumps, a growing number of homebuilders and even some real estate agents are trying to coax buyers with a kind of mortgage unemployment insurance.

Major builders offering job loss mortgage payment plans include Lennar Corp., Pulte Homes Inc., The Ryland Group Inc. and Toll Bros. Inc.

"We're literally adding at least one builder a day throughout the country," said Todd Ludlow, senior vice president of Rainy Day Foundation, a nonprofit organization that administers the programs for many builders.

Builders can pay anywhere from $450 to $900 per customer for the coverage. Some absorb the cost as they would any other sales promotion, Ludlow said; others pass it on to buyers.

In January, Lennar unveiled a version of Rainy Day's program called "Piece of Mind Mortgage Payment Protection Plan." Lennar covers monthly mortgage payments between $1,800 and $2,500, depending on the market, for a maximum of six months. Buyers can take advantage of the program only if they lose their job within the first two years after purchasing the home.

Toll's mortgage protection program, launched last month, covers only homebuyers who finance their purchases through the company's mortgage lender. The plan covers up to six monthly payments of up to $2,500 a month -- including interest, taxes and insurance -- if the homeowner loses his or her job within two years after closing on his or her home.

"It's for those who perhaps are not feeling themselves in imminent danger but just want that extra safety net," said Kira McCarron, chief marketing officer for luxury homebuilder Toll, which is based in Horsham, Pa.

A marketing representative for Toll Bros. in Las Vegas said she didn't know the details of the program or whether anyone has enrolled yet in Las Vegas.

Monica Caruso of the Southern Nevada Home Builders Association said she's heard of one or two builders offering the insurance, but hasn't seen it as a trend yet.

One of the industry's most generous programs comes from Cousins Properties Inc., which is marketing the incentive with its 10 Terminus Place luxury condominium tower in Atlanta.

Cousins Properties is offering to refund to buyers all their mortgage payments should the appraised value of their condos fall below the sale price after three years. Cousins will let buyers walk away from their properties if they lose their job or just can't make their mortgage payments anymore.

"You won't have a foreclosure, you won't have a credit issue and you won't have any future obligation," said Tom Bell, Cousins Properties' chief executive, adding that such homeowners would sacrifice their 5 percent down payment.

Some real estate companies also are offering the incentive.

Keller Williams Realty Inc. began offering job-loss protection through the Rainy Day Foundation a couple of weeks ago as a test program in South Florida. If the program succeeds there, the company will roll it out nationally.

"We're bringing it to our sellers as a marketing opportunity," said Greg Cook, spokesman for Keller Williams South Florida.

The company also is offering the incentive to buyers who enlist a Keller Williams agent to buy a home that's not being listed through the company, Cook said.

The plan pays up to $2,500 to cover the full mortgage payment, including taxes and insurance, for six months.

The insurance costs $650, which can be structured into the closing costs the seller pays, Cook said, or the lender or agent can pay it.

Buyers who'd rather skip the job-loss insurance will get the $650 applied to the home's cost, Cook said.

That's a good idea, suggests J. Robert Hunter, insurance director at the Consumer Federation of America.

Hunter said homebuyers may be better off passing on the mortgage payment insurance plans -- which he generally called "a gimmick" -- and ask for a discount.

"If we're in for a two-year recession and I lose my job, I may not get it back for two years, and six months is still not going to save me," Hunter said. "I personally would want to find out how much money I could save buying the house without it."

Review-Journal writer Hubble Smith contributed to this report.