Will Downpayment Insurance Protect Borrowers?

As housing prices continue to improve across the country, some borrowers are having trouble forgetting about the housing crisis that put their old mortgages underwater. To allay these fears, new insurance products are being developed that promise to protect borrower’s home equity in the event of another downturn. Recently, Summit’s Chief Valuation Officer Mark Melikian offered his comments on one plan being offered by a Dallas-based company. Summit does not offer insurance and is not affiliated with any company that does.

“The idea of protecting a borrower’s home equity — or an investor’s, for that matter — is very attractive,” Melikian said. “But unless the insurance protection is based upon actual property values, the coverage may offer less protection than many homeowners expect. Real estate is a very localized business and using a state-by-state analysis of property values to determine potential loss will be problematic for homeowners.”

Featured Sponsors:


So, is there a better way to protect a borrower’s investment in a new home?

“In some cases, buying a home involves investing some amount of capital as a down payment. Like any type of investment it carries some amount of risk,” Melikian said. “An independent value verification specific to the insured’s property would likely result in a more accurate accounting of whether an actual loss took place during a transaction.”

Melikian continued, “Valuation methods have evolved to include a broad range of options (both automated and live) which can be selected based on the complexity of the property in question. A customized valuation method may prove to be more reasonable, and may be demanded by the market, for calculating an actual loss on one’s investment.”

About The Author