Expanded HARP, Negative Equity, Inspire New Insurance Options

Awareness to the negative equity problem faced by millions of borrowers and their lenders continues to concern market insiders as they strive to come up with solutions that can help ease the setback. It is the goal of the new Home Affordable Refinance Program and some insurers whose products offer some degree of protection as an added incentive to homeowners interested in refinancing or taking on a new mortgage.

The U.S. Mortgage Insurance branch of Genworth Financial Inc., Richmond, Va., is one such example. The company said it is implementing changes “to fully support the expanded” HARP on Fannie Mae, Freddie Mac and FHA loans so that more “underwater” borrowers who owe more on their mortgage than their homes are worth can take advantage of the current low interest rates. The company said it “will meet or exceed” the new GSE program guidelines announced on Nov. 15 in an effort to make it simpler and more efficient for lenders to participate in the HARP initiative.

Changes will help more homeowners take advantage of the HARP refinance opportunity, said Rohit Gupta, chief commercial officer for Genworth Mortgage Insurance, who sees HARP as “another important step on the road to housing recovery.”

In today's marketplace mortgage insurance is as important as credit availability, home prices and landing the lowest interest rate.

In Ohio, over 75 independent insurance agents throughout the state applied to be appointed agents for Columbus-based Home Value Insurance Co. soon after it introduced the Home Value Protection on Sept. 28. According to Richard L. McCathron, executive vice president of Home Value Insurance Co., this insurance protects homeowners from housing market risk. The pioneering insurance policy aims to protect homeowners from a loss in the value of their home due to local housing market declines.

HVP is available for primary, owner-occupied single-family homes and condominiums and is exclusive to the Home Value Insurance Co., an admitted, licensed carrier in Ohio.

Typically monthly premiums are at less than $50. But if local home values go down and the owner sells the property for less than the value it was insured for, Home Value Protection can help cover the loss.

As shown by an example posted on the company website, if the home value today is $200,000, it is protected by the insurance. If in three years the property is sold for $180,000 because according to the home price index local home values have decreased 10%, the expected loss is $20,000, which also is the amount the homeowner will receive from the Home Value Protection claim. The policy covers a loss of up to 25% of the protected home value and has a 10% deductible if the house is sold after the first year and 5% if sold after the second year of coverage.

Independent insurance agents throughout Ohio now have the option to offer the property and casualty policy to homeowners, “whose response throughout Ohio has been overwhelming,” McCathron said.

Realtors and developers also are expressing interest in the marketing benefits of this new policy. And one of the reasons why the new coverage drove in significant interest from these agents is because the program “helps solve what has emerged as a major concern” for both homeowners and homebuyers, the risk of their home losing value and adversely impacting both their financial well-being and their ability to move.

In Ohio, home values have declined nearly 18% from their peak in 2006. Home price uncertainty combined with unpredictable life events such as health problems, marriage, unemployment, early retirement or divorce, increase the need for insurance protection. So it is no surprise independent agents see value in providing their clients with a timely solution, McCathron says.

The company is informing the public through an advertising campaign targeting homeowners and homebuyers, while it is building up a network of over 300 independent Home Value Protection insurance agents across the state.

If the insurance takes off, according to McCathron, such coverage may have a significant impact in Ohio, which has large, diverse population centers “that are representative of the broader U.S. market,” a homeownership rate of 70%, and collaborative state economic development officials.

Ohio Gov. John Kasich endorsed the Home Value Protection in his in his keynote speech at the Independent Insurance Agents of Ohio convention in Columbus, citing the value of creative entrepreneurship. Home Value Protection insurance was launched after over two years of “intensive development and analysis,” and has been reviewed by the Ohio Department of Insurance to ensure it complies with the state and federal law.