What does default insurance provide for lenders?

Default insurance provides protection for lenders in the event that a borrower fails to meet their mortgage obligations. It serves as a security measure for lenders, ensuring that they can recover some or all of the outstanding loan amount when a borrower defaults. This type of insurance mitigates the financial risk associated with lending, particularly with high-ratio mortgages where the borrower has a down payment of less than 20% of the property’s purchase price.

The other options do not accurately describe the purpose of default insurance. Coverage against property taxes pertains to property tax insurance, which is distinct from default insurance. Coverage for property damages refers to homeowners or property insurance, which protects against loss from physical damage to the home itself. Insurance against market fluctuations addresses risks related to changes in property value, which is not covered under default insurance. Each of these alternatives focuses on different aspects of property ownership and lending, emphasizing why the correct answer highlights the specific role of default insurance in safeguarding lender interests.