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 unit of Genworth Financial Inc., Richmond, Va., is one such example. 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, which represents an “important step on the road to housing recovery.”
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, the firm's EVP, the insurance protects homeowners from devaluation 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, to cover potential home value related losses if the owner sells the property for less than the value it was insured by HVP.
An example posted on the company website does the math. For a home valued and insured today at $200,000, 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 HVP claim amount the homeowner will receive. The policy covers losses of up to 25% of the protected home value, but includes 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 can participate. The response “throughout Ohio has been overwhelming,” McCathron said. Realtors and developers also are expressing interest. And one of the reasons why is because the program “helps solve what has emerged as a major concern” for both homeowners and homebuyers, the risk of losing home value that adversely impacts 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 HVP 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. HVP was launched after over two years of “intensive development and analysis,” and has been reviewed by the Ohio Department of Insurance to ensure compliance.
