Protecting The American Dream

It is heartbreaking to learn from the latest reports that after enduring this past summer’s unforgiving hurricanes Harvey and Maria, many homeowners now face the perils of mortgage delinquency and potential foreclosure. All of this is happening as they try to rebuild their community and put their lives back together. Surely, that’s not what the homeowners had in mind when they purchased the home. This is when the American Dream could become a nightmare.

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Hurricanes or not, owning a home continues to be the greatest American Dream and one of the most rewarding experiences. However, as they say, it’s always prudent to hope for the best and plan for the worst. We are reminded that homeowners must plan for the unexpected, as there is a long list of events that could happen – many completely beyond a homeowner’s control – to affect a home’s condition and its value. Hurricanes, sure; floods, earthquakes…this is why homeowners are strongly encouraged to buy homeowners’ insurance and to have other insurance policies to protect them against natural disasters and potential losses.

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Just like hurricanes, geopolitical developments, terrorism, global economic events, domestic financial markets, the departure of a corporation and a large local employer…there are many things that can happen – also beyond a homeowner’s control – that could suddenly start a downturn ripple and plummet a home’s value. During the 2008 housing crisis, millions of American homeowners saw their home value in free fall – a recorded $11 trillion in total value loss – and not all of these homeowners were subprime mortgage borrowers. Nearly all homeowners in America, including those who held onto their jobs and paid their mortgage on time, saw their home value decline. And we do not need to go as far back as a decade ago. More recently, large local employers including GE and Aetna left Connecticut, causing a substantial hit to the local housing market beyond local homeowners’ control. To many in the state, it might have felt like a hurricane had made landfall. Lenders recognize the unpredictability of the housing market – this is why they mandate many homebuyers to pay for mortgage insurance to protect the lender’s investment.

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Until now, homebuyers paid for mortgage insurance to protect their lenders from financial loss but did not have any channels to protect themselves. Just as we no longer walk down the street to use the neighborhood pay phone, home buying too has changed for the better. Today, homebuyers can protect their own hard-earned savings and contribution into the home – their down payment – by choosing down payment protection. By adding a few dollars a month to their monthly mortgage payment, or choosing a mortgage lender that offers the protection at no charge, homeowners can now protect their home if there is a real estate correction. They can have their loss reimbursed to them even if they sell their home for less than what they bought it for. This consumer-empowerment protection is also available to homeowners who refinance, in the form of equity protection. If a homeowner refinances in today’s housing market high and sells at a lower amount, he or she can preserve that home equity and have the lost amount reimbursed to them, as a policy holder of equity protection.

We don’t know when the next hurricane will hit but economists tell us a real estate market downturn typically happens in 7 to 10 year cycles. Instead of trying to time the market – or wishing to never experience a hurricane again – it is wise for homebuyers and homeowners to hope for the best, but always plan for worst.

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