VOHI Is Essential but Not Easy for Many Lenders
When it comes to mortgage loans, hazard insurance is one of the most important tools available for protection and risk reduction. VOHI, or verification of hazard insurance, is a critical step in the credit lending process. Verifying that applicants have the proper insurance in place to protect their investment is essential — both prior to and after closing — but it’s not always easy for lenders to facilitate.
Understanding the importance of hazard insurance
By definition, hazard insurance covers a wide range of events, including fire, storms, wind damage and similar types of loss. Every homeowner and mortgage lender faces these unpredictable (and usually unpreventable) risks. With hazard insurance in place, however, mortgage lenders do not have to worry about their investment — even with significant damage to the property. The homeowner’s insurance policy covers the damage and secures the value.
Why is VOHI so important?
Without proper VOHI, there is little lenders can do to know if a policy is in place. Once buyers purchase property, they can easily make changes to their hazard insurance policy. Significant changes include reducing coverage amounts, eliminating add-ons for earthquakes, floods and other noncovered risks, or simply dropping the policy completely.
Due to the possibility of these pre-close or after-close policy changes, lenders are at risk. Without VOHI, a property may not have necessary protections in place, leading to comprehensive risks for the secured loan.
Regulation changes require more information
New regulations from the Federal Housing Finance Agency indicate that lenders must be able to clarify their repurchase exposure and liability. Providing quality control review is critical for lenders to maintain accurate reporting. However, without data such as VOHI, it may be difficult for them to fully understand the present risks.
Equifax Mortgage Services can help
One way to avoid the risk of noncompliance for hazard-insurance requirements is to utilize Equifax Mortgage Services. This tool allows lenders to have pre-close and ongoing verification of information that’s key to mitigating risk: employment verification, property valuation and portfolio management. Even beyond insurance verification, this product provides information to lenders about the real risk factors borrowers present.
With Equifax Mortgage Services, it’s possible to obtain a comprehensive overview of a borrower’s status. You’ll ensure that protection is in place for your mortgage loan, both prior to and after loan closing.
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