As unemployment grows, mortgage payment protection programs gain popularity

Is there a rainy day in your personal job forecast? That wouldn't be surprising -- not with unemployment rates in double digits in several states including California, 8.2% nationwide and widely expected to hit 10% or higher by next year.

Nor would it be surprising if uncertainty about your income is a major barrier keeping you out of the home-buying market this spring. That's why a previously obscure charitable group based in Washington, D.C. -- the Rainy Day Foundation -- is doing a booming business in what's called the mortgage payment protection niche.

Rainy Day is offering job-loss protection coverage and home buyer financial counseling through about 100 builders and lenders across the country, plus two large real estate brokerages, according to Chief Executive Rick Del Sontro.

Here's how the Rainy Day plan works: Consumers buying homes through a participating builder, lender or realty agency can qualify for as much as six months of mortgage payments -- capped at $1,800 a month in some versions and $2,500 in others -- if they lose their jobs during the two years after their closing. There is no direct cost to the buyer. The insurance coverage is underwritten by Virginia Surety Co.

Buyers can also receive pre-purchase financial education and periodic post-closing check-ins by Rainy Day counselors. Purchasers may also be eligible to receive "emergency fund" grants from Rainy Day if they encounter short-term financial drains such as unexpected medical bills.

The emergency fund, which Del Sontro estimates will pay out $8 million to homeowners in 2009 -- up from $4 million last year -- is designed to "bridge the gap" and keep full payments flowing for a month or two after an unanticipated financial problem. If the owners have only $1,000 available in a given month but their mortgage bill is $1,500, Rainy Day contributes the missing $500.

The emergency grants are not extended to everyone who is in a jam: Rainy Day won't provide extra money when individuals have been financially reckless. Nor will it give grants in divorce or separation situations, or other problems attributable to actions by the homeowners themselves.

Lenders and builders pay $550 or more to Rainy Day for each participant in the plan. The money funds the premiums for the basic insurance coverage as well as the emergency fund.

Some of the clients and partners are big: Lennar Corp, for example, is active in 17 states including California, Florida, Arizona, the Carolinas, Illinois and the metropolitan Washington area. Long & Foster Real Estate is the largest independent realty brokerage in the country, according to industry estimates. Keller Williams, whose South Florida affiliate began offering coverage this month, is the third-largest realty franchise firm in the U.S.

Rainy Day is hardly the only job-loss protection program in the housing field. Mortgage payment coverage has been available through some insurance companies, lenders and mortgage brokers for years at varying costs. (The California Assn. of Realtors offers a mortgage insurance program for first-time buyers.) But with unemployment at quarter-century highs, Del Sontro said, "at this point we can't handle all the calls we're getting" from lenders, builders and consumers who want to sign up.

Toll Bros. Inc., a publicly traded luxury builder with 250 projects in 21 states, recently began a major push with its own version of the idea, offering maximum payment coverage up to $2,500 a month for six months over a two-year period.

From a consumer perspective, job-loss protection -- insurance coverage worth up to $15,000 (six months times the $2,500 maximum) of monthly mortgage debt -- sounds like a no-brainer. But there are some wrinkles and issues you need to know about upfront:

* Although there's no direct cost to the buyer, that doesn't mean it hasn't been tacked on subtly somewhere in the deal -- possibly in the price from the seller or builder.

* There are key exclusions and coverage limits. For instance, the Rainy Day program doesn't kick in for two months after closing. Self-employed persons, independent contractors and active military members are not eligible. There's a 30-day waiting period after you lose your job before the first insurance payment is made.

* The Toll Bros. plan is only available to buyers who use its affiliated lender, TBI Mortgage Co. Consumers who know of a forthcoming layoff or "any impending job loss" are ineligible. The program excludes loss of income through voluntary resignations, "willful misconduct" and seasonal shutdowns.

Bottom line: Even when it's "free," read the fine print.

Distributed by the Washington Post Writers Group.