Home Warranties Protect Builders and Homeowners

Homebuyers are asking “Who is standing behind the Builder’s Warranty”? A home is probably the consumer’s single largest purchase. Builders and homebuyers are currently struggling with high cancellation rates in some markets, falling prices, rising incentives, and high inventories. Some builders are also having a lot of trouble borrowing money, which is needed to finish the homes before they can be sold. All of this means that the risk of some builders being unable to fulfill their warranty obligations to a Homeowner is increasing. When a builder provides his homeowner with a 2-10 Home Buyers Warranty® (2-10 HBW) the risk of the builder defaulting on his warranty obligations are transferred to a warranty insurance company with over 28 years of experience in residential construction.

Two thirds of newly built homes have a warranty that is only backed by the builder. A builder’s own warranty only provides coverage for as long as the builder stays in business. Builders don’t set out with the intent to build a defective home or to deny the homeowners the service to which they are entitled. However, as a result of the current economy and unexpected business failures, it does happen that some builders have no resources to perform their warranty commitments. The homeowner loses unless the homeowner received a 2-10 HBW Warranty in which the builder’s warranty obligations are backed by a warranty insurer.

The warranty insurer for the 2-10 HBW warranty program is National Home Insurance Company (A Risk Retention Group) (“NHIC”). NHIC is the insurer of the new home warranties issued to homeowners by builders who are members of the 2-10 HBW program. NHIC is a risk retention group established in 1986.

The insurance provided by NHIC covers the builder’s liability under the 2-10 HBW warranties issued to homebuyers. If a builder defaults on his warranty obligations, the warranty insurer expedites repairs and protects the homeowner’s investment by fixing covered workmanship, systems and structural defects in their home. The Warranty Insurer backing the 2-10 HBW warranty pays over $12 million in claims annually. In the last 15 months, the warranty insurer for the 2-10 HBW warranty program has accepted 172 claims for builders who filed for bankruptcy or closed their doors. The gross incurred losses (indemnity and expenses, reserved and paid) on these claims alone is approximately $1 million dollars.

NHIC has made claims payments of $174.8 million on behalf of builders in the past 22 years and NHIC expects to pay and has reserved an additional $143.3 million for future payment on claims reported and not yet resolved. The financial strength of NHIC continues to be strong, serving customers in 48 states and the District of Columbia.