Sounds intriguing, right? But as with all insurance products, you’ve got to look hard at the details, especially the terms governing when and how much you’ll receive if you make a claim for a loss. The sponsor of the plan is a company in Dallas, ValueInsured (www.valueinsured.com). For the +Plus program, ValueInsured is partnering with Texas-based specialty insurer Houston International Insurance Group, and Everest Re Group Ltd., a reinsurance company headquartered in Bermuda.
In an interview, Joe Melendez, founder and CEO of ValueInsured, told me that the goal of +Plus is “to take the risk element off the table and give (buyers) more confidence.”
So how much risk is really taken off the table? Start with the conditions that have to be met to qualify for a payment on a claim. Simply documenting that you suffered a loss after a sale won’t necessarily get you your down payment money back. You can’t file a claim during the first two years after your purchase or after seven years.
Next comes the really tricky part. The +Plus plan keys its payouts in part to a property value index published by the Federal Housing Finance Agency (www.fhfa.gov/DataTools/Tools/Pages/HPI-Calculator.aspx). If your state index hasn’t dropped during the period of your ownership but the sale price of your house has gone down, or if the FHFA index hasn’t declined as much as your home’s value since the date of purchase, you’re not likely to get all of your money back. Or maybe anything at all.
Here’s an example provided by ValueInsured: You put down $20,000 down on a $100,000 house. Five years later you sell at a loss of 20 percent, $20,000. If your state home price index as measured by the FHFA has declined by only 10 percent, the most you can obtain on a claim is $10,000. If your house declined in sales price by 30 percent but the FHFA index remained flat, you’d get zero on your loss. But if the index declined by 30 percent and your home price also declined by 20 percent, you could claim your full $20,000 back.
The payout formula is this: +Plus will pay the lesser of: (1) your original down payment, (2) the actual equity you lost, or (3) the purchase price or your house times the reduction in your state’s FHFA index.
Not so simple. For this sort of down payment insurance to provide you maximum coverage, your house essentially cannot be losing value faster than the statewide average, which of course, may not show any decline at all.
Good deal or not? It might make sense for you if unexpected economic reverses depress property values in your state. It might make sense as peace-of-mind coverage. But do the math and figure the likelihood that the premium you pay — which could raise your interest rate for long beyond the point where your coverage expires if it’s included in your mortgage rate — is worth the coverage you’ll receive.
Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net.