More Homebuilders Offering Mortgage Unemployment Insurance

While most sales gimmicks are unlikely to put a dent into the mountain of unsold inventory out there, it's encouraging to see builders starting to align their incentives more closely with the most-pressing concerns of would-be buyers. Even as mortgage rates fall to all-time lows and prices retreat to 2003 levels, many potential buyers remain on the sidelines. The biggest reason, as many housing experts see it, is the recession--or more specifically, the rapidly eroding labor market. After all, that home might be $100,000 less than it was in 2005, but it won't be such a great deal if you lose your job six months form now. And with so much uncertainty out there, buyers are understandably delaying the purchase until things settle down. (The result, of course, is more downward pressure on home prices.)

With that in mind, the following trend is encouraging:

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 Brothers Inc…

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.

Launched last month, Toll's mortgage protection program only covers homebuyers who finance their purchase through the company's mortgage lender. The plan covers a maximum of 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 their home.

The programs aren't perfect: many folks who lose their jobs won't be able to find new ones within six months. So these mortgage unemployment insurance plans may prove to be unsuccessful sales tactics and need to be reworked. Still, by addressing buyers' labor-market concerns, the industry is taking a step in the right direction.