What is meant by a mortgage by indemnity?

A mortgage by indemnity refers to a loan that is backed by some form of insurance, typically provided by a government agency or a private insurer. This insurance serves to protect the lender against the risk of default by the borrower. In the context of mortgages, this means that if the borrower fails to repay the loan, the insurer will compensate the lender for losses incurred. This arrangement significantly reduces the lender's financial risk and can often lead to more favorable loan terms for the borrower, such as lower down payment requirements.

Understanding this concept is crucial for loan originators, as it affects how loans are structured and what types of protections are in place for lenders. Options related to collateral or documentation do not align with the concept of indemnity, as these aspects are focused on the loan's processing rather than the risk mitigation provided by the insurance backing.