Why Buy Home Equity Insurance?

By Wei Zhang, Seed.com Contributor

As the eye-popping drops in housing prices have slowed, financial companies have come up with a new insurance product that protects against further declines in house prices. For a small premium of one to three percent of your home price, a home equity insurance contract (also known as home value insurance) will reimburse you for losses if you sell your house in a market where the average home price in your region has dropped. The amount received is tied to the size of the decline of your local home price index (and not to your specific home, which is meant to give homeowners an incentive to maintain the home), and there is a lockup/waiting period of 18-36 months before the contract takes effect. Should you buy home equity insurance for your home? There are two situations in which you should seriously consider such a product:

1. You want to take out a home equity loan without risking bankruptcy.
Say you need some capital to start a small business, and are considering taking a loan against your home equity. In the worst case scenario, you can face a simultaneous business failure and home price decline. This would leave you with no cash flow to pay the interest on the home equity loan, and no way to sell the house to repay the loan, leaving bankruptcy as the only option. If you have home equity insurance, you have the option of selling the house to repay the loan, avoiding bankruptcy. This would at least preserve your credit score, and allow you to take out another loan in the future.

http://xml.channel.aol.com/xmlpublisher/fetch.v2.xml?option=expand_relative_urls&dataUrlNodes=uiConfig,feedConfig,entry&id=831356&pid=831355&uts=1265749639

http://cdn.channel.aol.com/cs_feed_v1_6/csfeedwrapper.swf

Six Horror Stories of Mortgage Modification

Ron Nash, Carlsbad, Calif.
Ron Nash is not someone who's shy about pushing to get what he wants; he's a motivational speaker, headhunter and author of "How to Find Your Dream Job; Even in a Recession." But when it came to obtaining a mortgage workout, he wasn't getting anywhere -- even after months of trying. He finally wrote a letter to the president of his lender to try to resolve the issue. The results were very gratifying -- at first. After that, however, and after he was asked to send in all his paperwork for the fifth time, he didn't hear from them again for six months. Then, recently, he finally got a call back with a loan workout offer.
Full Story: Why He Chose to Walk Away

Courtesy CNNMoney.com

BlackVoices.com

Mortgage Horrors

Sue Wright, Las Vegas, Nev.
Real estate agent Sue Wright was one of the earliest homeowners to apply for the FDIC's mortgage modification plan to help insolvent IndyMac's at-risk borrowers keep their homes. But because she was current on her mortgage payments, the bank said it couldn't help her and advised her to stop making payments for two months. She did that and called back right after her second payment was overdue. She was given a plan with a reduced interest rate and told to make the new payments for three months and the modification would become permanent. But after doing that, she received a letter from the bank telling her the modification was off; the investors wouldn't approve it.
Full Story: The Crazy Part Is ...

Mortgage Horrors

A. G. Chancey, Longwood, Fla.
Chancey has been trying to arrange a mortgage workout since August 2008, when she was only two months behind on payments. Today, after dozens of phone calls to her lender, she's made progress. But she's now five months behind. She has been in the home for 23 years, but family health problems, divorce and economic factors have conspired against her and she's never been able to substantially pay down the loan. She tried to apply for a mortgage workout, but no one ever seemed to know her status.
Full Story: She May Get Good News Yet

Mortgage Horrors

Raul Medina, Moorestown, N.J.
No good deed goes unpunished, they say, and Amber and Joe Tardiff might be forced to agree. When Joe's good friend and partner in a landscaping business, Raul Medina, was left a parapalgegic by an auto accident, the Tardiffs took on the Good Samaritan task of dealing with Medina's mortgage issues. Medina, who's also a minister, owns two properties, his residence and one he bought for a Moorestown, N.J., church to provide shelter for the homeless. But after seven months of roadblocks, wrong numbers, voice mails to people who no longer work for the company, they were told that the lender does not offer any loan modifications.
Full Story: His Only Options Now

Mortgage Horrors

Richard and Pati Kays, Stuart, Fla.
"He's 83 and I'm 73, with separate assets, stuck in the mortgage mess. We're not quite in foreclosure but in distress over the inability to sell or refinance," says Pati Kays. Pati married husband Richard seven years ago. He's a retired high-steel construction man. She's a retired attorney who owns five cottages she rents out. Richard was supplementing his pension and social security with the rent from a mortgaged duplex he owns. Not any more. His adjustable rate mortgage reset, and his payment on the $430K mortgage went from $1,750 a month to $2,750. The rent he now receives is only $1,800 a month. Trying to head off problems, Richard called his lender to ask for a workout.
Full Story: Why He's in a Bind

Mortgage Horrors

Ken Mobley, Tampa, Fla.
Ken Mobley had some of his best earnings years ever in the mid-2000s, as an advertising sales representative for a media company. But with newspaper ad revenues in decline, he was "reorganized" by his company and now sells ads to mom-and-pop businesses. He called his lender last fall hoping for a hardship consideration and asking for a two-month postponement of his mortgage payments. He wanted to have them added to the end of his mortgage. Mobley says his credit rating was excellent, and he was merely trying to free up some cash for the holidays. The effort failed.
Full Story: His Catch-22

Mortgage Horrors

2. You are currently above-water in your mortgage but may be forced to move in the future.
If your current job is less than secure, and if upon losing your job, your best prospects lie in another city, then you should consider buying home equity insurance. This would ensure that should you be forced to move in the future, you will not face a bankruptcy situation if your mortgage has gone underwater at that time. In this scenario, you should take into account the lockup period of the insurance, and make sure that you have sufficient funds to maintain your mortgage until the end of the lockup. If you do not have enough funds to pay your mortgage until at least the end of the lockup, you could be forced into foreclosure before the insurance policy takes effect. It would also be a good option to buy this insurance if your job is secure, but you plan on staying in a residence for less than 10 years.

You should NOT buy home equity insurance for speculation purchases, or if you do not intend to move.

If you intend to stay in the area for the next 10-15 years, and already own your home outright or are confident of making mortgage payments, you should not buy home equity insurance. Firstly, it is highly unlikely that home prices will decline over a 10-15 year period. Furthermore, home equity insurance only pays out if there is a sale of your home. It does not pay out if there is a home price decline but you do not sell your home. For the same reason, home equity insurance is not a good product for speculation. The need to own a home in the area and carry a mortgage for up to 36 months, as well as the heavy transaction costs associated with a sale, will pretty much wipe out any profits you hope to gain from a speculative trade even if the equity is protected by insurance.

If you think that you want a home equity insurance product, the major companies offering these products include the Lighthouse Group and EquityLock Financial.