What type of insurance protects the lender from losses in case of borrower default?

The correct choice is mortgage insurance, which is specifically designed to protect lenders from losses that arise when a borrower defaults on a loan. When a borrower fails to make payments, mortgage insurance helps mitigate the lender's risk, enabling them to recover some or all of the losses associated with the unpaid loan balance. This type of insurance is particularly important in high-risk lending situations, such as when the borrower puts down a smaller down payment.

Homeowner's insurance protects the homeowner from losses to their property due to events like fire or theft but does not provide any protection to the lender against borrower default. Title insurance protects against issues related to the property's title, ensuring that there are no legal issues that prevent the ownership transfer, while life insurance offers financial security to dependents in the event of the policyholder's death, but does not pertain to mortgage loan defaults. Understanding these distinctions is important for both loan officers and borrowers when navigating the mortgage process.