New Insurance Protects From Falling Home Values
November 22, 2013
A new type of insurance debuting next month protects home owners against negative equity. Underwater Mortgage Protection, offered by AmTrust Financial Services, is to launch in three states in December. It is then to roll out nationwide within the next year.
"Our product fills a significant gap that was needed in the marketplace," says Matthew Kayton, vice president of the real estate insurance group at AmTrust. "We will be there to help consumers if they end up in a situation where life happens to them and they need to sell, and they might be in a down market."
While the recent rise in home prices has helped lift nearly 5 million home owners into positive equity again, 21 percent of all home owners with a mortgage still owe more on their loans than their homes are currently worth, CNBC reports.
With this insurance from UMP, home owners will have an opportunity to pay an average monthly premium of $40 to $50 to get gap insurance on the value of their home. However, in order to apply for it, home owners must have at least 10 percent equity in their homes at the time. Also, home owners will be unable to refinance during the coverage period.
If home owners decide to sell their homes and the value of the home is not worth the mortgage amount, UMP will assist home owners in selling the property through its own agents and then will pay the lender the difference.
Some critics of the program say that the insurance plays on home owners’ fears.
"Consumers who have an extra $40 or $50 per month can 'self-insure' against house price declines by paying down their mortgage principal faster," Barry Zigas, director of housing for the Consumer Federation of America, told CNBC. "This generates further equity and is an investment, not an expense for insurance that may never be recouped."
Source: “Underwater insurance, as millions of homeowners emerge for air,” CNBC (Nov. 21, 2013)
Updated: February 14, 2020