Comment by nostrademons

Also seems very likely to cause a financial crisis that the rest of America will end up paying for anyway. If you don't pay out enough to rebuild that particular lot, then the likely outcome will be an empty lot with a burned out husk on it. In most cases, this is worth considerably less than the remaining value of the mortgage. The homeowner then walks away from the mortgage, leaving the bank holding the bag. The bank has socialized this risk by selling the mortgage as an MBS that is sitting in somebody's money-market account. Cue 2008.