Insurance API
 min read

Meeting the Requirements of Insurance for Mortgage Lenders

Published on
February 8, 2024
Ray Huang
Head of Marketing

Ray is the Head of Marketing at Canopy Connect and has helped dozens of startups and growth companies over his 20-year career to develop strategies and implement tactics that yield high-impact results.

Mortgage lenders have a responsibility to confirm that their borrowers have adequate homeowners insurance coverage. To do this, they need to be able to verify the evidence of insurance provided by their borrowers.

But what exactly does this evidence of insurance consist of? This blog post will provide a guide for mortgage lenders to use when verifying evidence of insurance. We’ll discuss the types of documents accepted as proof of insurance, the additional requirements that may need to be met, and the importance of continuous coverage.

We’ll also explain how Canopy Connect's application program interface (API) makes it easy for mortgage lenders to verify insurance for underwriters. By the end of this post, you’ll have a better understanding of the requirements for evidence of insurance and how Canopy Connect can help you meet them.

Importance of Homeowners Insurance for Mortgage Lenders

Homeowners insurance is a crucial requirement of mortgage lenders, and it helps to protect both the lender and the borrower. Mortgage lenders require evidence of homeowners insurance as part of their underwriting process to verify that a borrower has sufficient coverage in place should an incident occur. Without proof of homeowners insurance, borrowers may be unable to secure a loan or could face additional costs associated with securing one.

For mortgage lenders, homeowners insurance protects against potential losses due to incidents like fires, floods, and other disasters. If such an event were to occur while a loan was still active, the lender would be out of any money invested in the property until settling the claim. This is why lenders require proof of homeowners insurance before approving any loans—they need assurance that their investment will be covered in case something happens.

Considering purchasing a home is an investment for both lenders and borrowers, the requirement to have homeowners insurance protects both parties in case of any disasters. 

Struggles of Verifying Homeowners Insurance

Verifying homeowners insurance can be time-consuming for mortgage lenders, especially if they're dealing with multiple insurers or policy documents from different sources. Additionally, most lenders are dealing with clients who are buying houses for the first time and are unfamiliar with the process. Gathering the information alone can lead to phone-tag with on-again-off-again calls or lengthy email threads—all while business days fly by in the process. Matters can become even more difficult if borrowers are unsure where to find the information lenders need—and going through the insured’s carrier is even more of a challenge. Delays in verifying insurance create problems for both lenders and borrowers, as incomplete documentation can derail timely home purchase closings. It’s in both the lender's and borrower's best interests to have ‌proof of homeowners insurance as soon as possible. 

Canopy Connect’s API ensures that verified insurance information is sourced directly from insurers, automating verification and reducing processing times to get lenders the information they need immediately—from a few business days to thirty seconds. With Canopy Connect’s lender solution, mortgage lenders can quickly access accurate information on homeowners’ policies and instantly determine if a borrower meets their requirements for proof of homeowners insurance coverage. The streamlined process reduces monotonous tasks associated with verifying evidence of homeowners insurance while guaranteeing that all necessary data is collected accurately every time.

Proof of Homeowners Insurance (an Insurance Binder)

Evidence of homeowners insurance serves as proof that a homeowner has a valid and active policy in place. Mortgage lenders need to verify that the borrower has adequate insurance coverage so they can be certain their loan is secure if something happens to the property. Evidence of insurance typically comes from the policy declaration page (dec page).

Canopy Connect's insurance API not only retrieves the dec page but also provides comprehensive details, including confirmation of full payment status, as well as the precise amounts paid and any amounts left outstanding. Mortgage lenders can use this up-to-date information to certify they received accurate data on the policies purchased by their borrowers. 

Our solution protects both mortgage lenders and homeowners should any issues arise during processing or the life of the loan. To meet compliance with state and federal regulations regarding consumer protection laws related to mortgages, all parties involved must have access to accurate documentation throughout the entire loan process.

Policy Documentation for Homeowners Insurance

When it comes to verifying a homeowner’s insurance, mortgage lenders require evidence of insurance that meets specific criteria. The dec page is one of the most important documents used in this process and serves as proof that an approved provider currently insures the property. It includes basic information about the policyholder, including their name, address, and policy number. It also includes details about the policy, such as limits, deductibles, premiums paid, and contact information for the insurer.

In addition to validating a dec page, mortgage lenders must also make sure that policies haven't expired or been canceled for any reason before closing on the loan. The policy expiration date should be clearly listed on the dec page and should match with any dates provided by the homeowner or their agent. Furthermore, it’s important to check that all required coverage limits are met to protect both mortgage lenders and homeowners from any potential liability issues down the road.

Finally, many insurers will require a Mortgagee Clause to be added to policies when homeowners with mortgages take them out. This clause indicates who holds loss-payee rights on a policy—in other words, who has legal control over an asset if something happens to it while it is still under a lien or debt agreement. Without this clause, insurers may refuse payment in a claim event, which could leave both lender and homeowner unprotected from financial losses associated with damage or destruction of property covered under a homeowners policy. Therefore, it’s imperative for mortgage lenders to verify that this clause is present on all applicable policies before closing on loans secured by mortgaged properties.

Additional Requirements for Homeowners Insurance

In addition to the basic requirements for homeowners insurance policies, there are additional requirements that mortgage lenders need to consider. Flood insurance is required in certain high-risk areas and windstorm or hurricane insurance may be necessary in other locations. Lenders must evaluate the area where they are lending and meet any extra requirements that may apply.

Proof of payment is also an important consideration when verifying a policy for a lender. Mortgage lenders should confirm that the homeowner has paid their premiums in full and on time, as this is essential for protecting them from potential liability issues. Canopy Connect simplifies this process by providing up-to-date information on payments made and any other changes or updates to the policy.

Continuous Coverage of Homeowners Insurance

Regarding continuous coverage, mortgage lenders must carefully consider both the consequences of a lapse in coverage and the renewal timelines associated with a homeowners’ insurance policy. A lapse in coverage due to non-payment or cancellation of a policy can lead to serious consequences for both the lender and the homeowner.

For example, if there is a lapse in coverage on an existing loan, the mortgage company may require full payment of any outstanding balance or require proof of current insurance before releasing funds at closing. In addition, they may also increase their interest rate on the loan as well as charge additional fees. Homeowners may be held liable for any damage that occurs during a period of no coverage, which could result in costly repairs or legal action against them.

To avoid such situations, mortgage lenders must stay up-to-date on when policies expire and act before any lapses occur. Canopy Connect empowers ‌lenders to maintain accurate policy information by allowing them to schedule recurring updates to their insurance data.

It’s also important for lenders to be aware of different renewal timelines that may vary from state to state or even between insurers. Renewal timelines can range from six months prior to expiration up to ten days after expiration depending on the insurer’s requirements. Lenders must be aware of these differences and adjust their processes accordingly. Additionally, some insurers offer automatic renewals where premiums are automatically charged at renewal without requiring additional steps by either party, although this should still be double-checked by lenders before releasing funds at closing.

In addition to verifying the accuracy of the information provided by insurers, mortgage lenders must also communicate regularly with their clients throughout the loan process. This is especially important in cases where there are changes to a policy or where an insurer didn't provide timely updates about renewals or payments made on a policy.

By employing Canopy Connect’s mortgage solution, mortgage lenders can save time and money while guaranteeing that they meet all requirements for evidence of insurance policies throughout the entire loan process, thus avoiding costly mistakes due to lapses in coverage or incorrect information provided at closing.

The Canopy Connect Solution

Canopy Connect automates ‌loan processing by providing a seamless solution for verifying insurance policies. Gone are the days of waiting weeks for documentation from borrowers or insurance carriers. With Canopy Connect, lenders can instantly verify insurance policies in just 30 seconds, directly accessing data from the carrier. 

Moreover, lenders have the flexibility to make borrower-approved changes to the policy, such as editing the mortgagee. With access to more than 300 of the top insurance carriers in personal and commercial, P&C, Canopy Connect has the market covered.

Experience the efficiency and convenience of Canopy Connect and streamline your loan processing operations today.