Layoff Policy Eases Peril of Home Buying : Insurance: Program guaranteeing mortgage payments from six months to life of loan receives mixed reviews.

Kenneth Worden, who works for a major Southern California home builder, knows better than most the ups and downs of the construction industry. So when it came to buying a house this year, the 37-year-old father of three understandably was reluctant. “I wanted to,” he recalled, “but at the same time I was scared.”

It’s not that Worden, director of operations for the Anden Group in Palmdale, was anticipating losing his job. Still, he’d experienced a layoff before and renting a house seemed a lot smarter than the burden of a monthly mortgage.

“When you’re in the construction industry you have that psyche where you see a lot of people come and go,” he said. “You’re not sure how long a job can last.”

Two months ago, Worden and his family moved into their new $200,000, four-bedroom house in Palmdale. What happened to his fears about buying a home?--Mortgage or “layoff insurance,” a program Worden found through California Financial Corp., a Colton-based mortgage broker that financed his loan.

Now, should he become unemployed, California Financial will cover his house payments for 12 months at a cost of $600 a year, an expense Worden considers “reasonable.” “To me it’s a security blanket,” he says of the insurance. “The last thing anyone wants is to lose their home.”

Mortgage insurance, layoff insurance, jobless insurance, peace-of-mind insurance--whatever you want to call it--is the latest attempt to boost the state’s stagnant residential realty market. While it’s been a feature of home mortgages in Europe and has had some success on the East Coast, layoff insurance is just now gaining popularity in California, with everyone from lenders to builders jumping on the bandwagon.

“We see more real estate companies and banks going to this to overcome resistance and rejuvenate this sector of the economy,” says Bob Sutton, director of public affairs for the Building Industry Assn. of Southern California.

Indeed, among the most recent to provide the insurance is BIASC, which unveiled a plan to its 119 members this September. Glendale Federal, the nation’s fourth-largest savings bank, launched its own program in August with a splashy, statewide radio and newspaper advertising campaign. Then there’s two of California’s biggest residential realtors, Century 21 and Prudential California Realty, which have been offering the insurance since July in a four-month experiment.

Why the enthusiasm for a concept that is largely untried and has achieved mixed reviews? In a word, insecurity. Despite low interest rates and reduced housing prices, many would-be buyers are staying out of the market, industry officials contend, because they’re worried about the economy or losing their job.

“A lot of folks in the industry are reaching for what we can do to turn this around,” says Kgell Austad, vice president of personal insurance products for the Averbeck Co., the Ontario insurance broker handling BIASC’s program. “Mortgage protection is really ending up being, ‘If this is a problem, let’s have a solution.’ ”

Here’s how layoff insurance typically works: For anywhere from six to 12 months, the company will assume your mortgage payment if you lose your job. But there the similarity among plans ends--in cost, eligibility requirements, insurance benefits, how long they’re effective and even how long they’re available.

In some programs, like BIASC’s, the builder pays the premium the first year. In others, like Glendale Federal’s, the buyer assumes the cost of the insurance policy--in this instance, 3.75% of the monthly mortgage for 12 months’ of coverage. Under Prudential’s plan, buyers are only covered for the first 18 months they own a home. Under BIASC’s, they’re protected the length of the loan as long as they renew the policy.

But be warned: if you’re still unemployed and your policy lapses, you won’t be covered.

Individual drawbacks aside, the programs are drawing great consumer interest. Glenfed’s Thad Peterson, executive vice president and director of marketing, says the lender has gotten “hundreds” of calls since August.

“The first seven days we had 11 people sign up for it,” he said. “A lot of people are signing up for it as we’re closing their loans.”

“Even some well-compensated executives that are buying a million-dollar home find this program attractive,” contends Prudential’s Rick Merrill, whose firm has processed about 1,000 applications requesting the insurance since July.

Among them was a corporate lawyer in San Francisco who, while in the midst of escrow, suddenly became concerned about his job status and decided to cancel the purchase. After learning about Prudential’s program, however, he had his realtor cut a deal with Prudential and he eventually bought the house.

But whether layoff insurance has brought flocks of wary buyers into the market and pumped up sales is another matter. In that respect, it’s been “marginally, if at all, effective,” claims Kenneth Agid, a principal in the Marketing Department, an Irvine company that works with master planned communities.

Ironically, some of the very people the insurance is designed to protect find the concept troubling.

One North Hollywood couple in their mid-50s, who recently bought a policy through Glenfed, did not want their names used in this story because they don’t want their employers knowing they have the insurance.

“The job market is very competitive,” says the woman, a medical secretary who has worked for the same firm for 11 years. “If there were six people and they had to lay off one person, and my employer sat down with everyone’s file and he knew I had this, would he say, ‘OK, this one is more likely not to be homeless. Therefore, let’s get rid of her’? “

Even the most enthusiastic about the idea admit the results have been spotty. “It’s been very helpful for those who are either in the housing market or slightly on the fence,” says Prudential’s Merrill. “But if you weren’t thinking about buying a home, it hasn’t been a catalyst to make you think about it.”

Coto de Caza, a master planned community in Orange County with homes ranging from $250,000 to more than $1 million, was one of the first builders to try layoff insurance in Southern California. But after offering the program this year for about two months, Coto de Caza abandoned it.

“It just didn’t work,” says Christine Harris, a broker and information coordinator for Coto’s sales office. “My opinion is it was not effective because of our clients. We have a lot of self-employed attorneys and doctors. It’s great for people who have a 9 to 5 job because you have to be eligible for unemployment.”

Kaufman & Broad Home Corp., the state’s largest builder of single-family homes, also flirted with the insurance for a few months. “It didn’t make that big an impact on our business,” says Bernard Sandalow, the company’s corporate communications manager, “which is why we’re not doing it anymore.”

There are several reasons why the programs haven’t lived up to expectations. One significant problem may be the concept--some argue that it simply sounds bad.

“It’s almost like negative selling, to say, ‘By the way, in case you lose your job, here’s this insurance we can offer you,’ ” Agid says. “It’s not something a sales agent wants to bring up. You don’t want to be calling people’s attention to negatives that are reasons not to buy.”

Brian Lake, who became president of Coto de Caza after the company’s insurance program had already been launched, agrees: “If you’re interested in one of my models, the last thing I want to do is bring up the prospect you might lose your job.”

Ron Cooper, president of MJJ Developers in Bakersfield, is one of 19 builders that are signed on with BIASC’s program. Although he’s gung-ho about the insurance, he also thinks the way it’s been marketed--as “a scare tactic”--is all wrong.

“I really think they should take the approach that this is not an emergency Band-Aid for a cut you may get in the future, but a natural progression of your insurance decisions,” he says. “You certainly wouldn’t buy a home without fire insurance.”

Yet another deterrent to the success of layoff insurance may be common sense. Frankly, Agid and other critics point out, if someone is afraid they’re going to lose their job, they’re not going to be out shopping for a house. Despite a track record that is decidedly unclear, many of those offering layoff insurance believe it’s here to stay. Most say they intend to offer it either indefinitely or in some form in the future.

“I really believe that at some point virtually every loan in America will have some layoff protection,” says Rick Merrill of Prudential, which will evaluate its program in November. “It’s a wonderful way to protect the lender.”