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Recycling the concept of home equity insurance in a down market

Revamping an old concept

The concept of equity insurance has been around longer than TNT & USA have been showing daylong marathons of Law & Order, Law & Order SVU, and NCIS.  Really, the idea goes back since around the time of Prohibition, and began as land insurance.  It kind of fell off the map for a few decades, re-appeared for our military briefly in the 1960’s, for protection against military bases closing, again made an appearance in Oak Park, Ill in the 1970’s, to deter “white flight,” and showed up once more in Syracuse, NY around 2002 as a way to spur homeownership, & fight falling home values in seriously depressed areas.  There is some excellent background on the entire topic, done by NYU, Yale, Neighborhood Reinvestment Corporation, and others, available here. Equity insurance has since been offered for sale by several different companies.

How it works these days in a more open-market setting, or, the-not non-profit arena, is like this:  The original value is established either by the sale price or an appraisal at the time of a purchase.  When a house is sold, usually the Case-Shiller®/S&P, or General Housing Finance Agency Indexes will be used to determine overall value decline, or not, for the area.  If values have fallen, a homeowner can file a claim, up to a certain amount based on how their policies are written, up to a max dollar amount – about $40,000, or percentage based on value – usually 10-20%.

Unlike other companies who may have similar products, this one, which will first roll out in Ohio, with other states to follow, is being offered by Home Value Protection (HVP), and sold by independent licensed insurance agents,  it will be regulated by the each state’s Dept of Insurance.  Home Value Protection is the very first company to take the initiative to have their home equity insurance product regulated by each state’s department of insurance.

How one company is approaching the concept

Teri Felix, Executive Vice President & Chief Marketing Officer at Home Value Protection, told us that from their own Sample Policy, there are differences which stand out from other companies that offer equity insurance.  HVP pricing will be running about $20 per month for every $100,000 in value.  Two other companies that have a similar product, Home Equity Guard, and Equity Lock Solutions, offer pricing on a percentage based on value, usually 1-3%, the national average being around 1.7% per $100,000 in value – and typically paid in a onetime upfront fee.  All three companies are currently only offering policies to owner occupied, non-multifamily residences.

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The arm’s length sale clause, which is mentioned in the sample policy online, is really anything other than an actual sale on the court house steps.  It can be a short sale, a pre-foreclosure, it can be a sale between known parties.  An oddity, for lack of a better term, with Home Equity Guard, they will allow short sales, and pre-f/c’s, but if any monies are owned to the mortgagee and values have fallen in the area of course, the Home Equity Guard policy will pay out to the lender first, any remaining dollars will then go to the seller/homeowner.

Finally the most completely awesome thing sets Home Value Protection apart from others, is that there is no lock-out period from filing a claim.  Both Equity Lock Solutions, and Home Equity Guard have periods of 2-3 years where owners are prohibited from filing claims.  HVP does have a deductible the first two years, 10% in year one, and 5% the second, but that also means an owner can sell and file a claim if values do indeed fall.

Written By

Katie Cosner, occasionally known as Kathleen, or KT, is a Realtor® with Cutler Real Estate and is active in her local Board of Realtors® on the Equal Opportunity & Professional Development Committee. She has been floating around online for a number of years, and is on facebook as well as twitter. While Katie has a few hardcore beliefs, three in the Real Estate World to live and die by are; education, ethics, and the law - insert random quote from “A Few Good Men” here. Katie is also an avid Cleveland Indians fan, which really explains quite a bit of her… quirks.

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