Home Price Protection^® FAQs

How does the program work?

Home Price Protection^® provides financial protection to homeowners in the event their local market index value declines at the time they sell their home, regardless of the price the home is sold for.

How does EquityLock determine the local market index value?

EquityLock Solutions use the House Price Index (“HPI”) provided by the Federal Housing Finance Agency and available to the public at www.FHFA.gov.

What’s my MSA & HPI

Enter a ZIP code to find out the Metropolitan Statistical Area and Home Price Index.

What is the value of the HPI?

The HPI is a broad measure of the movement of single-family house prices. It serves as a timely, accurate indicator of house price trends at various geographic levels. It also provides housing economists with an analytical tool that is useful for estimating changes in the rates of mortgage defaults, prepayments and housing affordability in specific geographic areas. The HPI is a measure designed to capture changes in the value of single-family houses in the U.S. as a whole, in various regions and in smaller areas. The HPI is published by the Federal Housing Finance Agency (FHFA) using data provided by Fannie Mae and Freddie Mac. The Office of Federal Housing Enterprise Oversight (OFHEO), one of FHFA’s predecessor agencies, began publishing the HPI in the fourth quarter of 1995. What transactions are covered in the HPI?

The House Price Index is based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included. Conforming refers to a mortgage that both meets the underwriting guidelines of Fannie Mae or Freddie Mac and that does not exceed the conforming loan limit. For loans originated in 2010, the loan limit was set by Public Law 111- 88. That law, in conjunction with prior legislation, provided for loan limits up to $729,750 for one-unit properties in certain high-cost areas in the contiguous United States.

Conventional mortgages are those that are neither insured nor guaranteed by the FHA, VA, or other federal government entities. Mortgages on properties financed by government-insured loans, such as FHA or VA mortgages, are excluded from the HPI, as are properties with mortgages whose principal amount exceeds the conforming loan limit. Mortgage transactions on condominiums, cooperatives, multi-unit properties, and planned unit developments are also excluded.

How is the HPI computed?

The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancing on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975. The HPI is updated each quarter as additional mortgages are purchased or securitized by Fannie Mae and Freddie Mac. The new mortgage acquisitions are used to identify repeat transactions for the most recent quarter and for each quarter since the first quarter of 1975.

How does the program work?

Home Price Protection® provides financial protection to homeowners in the event their local market index value declines at the time they sell their home, regardless of the price the home is sold for.

How does EquityLock determine the local market index value?

EquityLock Solutions use the House Price Index (“HPI”) provided by the Federal Housing Finance Agency and available to the public at www.FHFA.gov.

What is the value of the HPI?

The HPI is a broad measure of the movement of single-family house prices. It serves as a timely, accurate indicator of house price trends at various geographic levels. It also provides housing economists with an analytical tool that is useful for estimating changes in the rates of mortgage defaults, prepayments and housing affordability in specific geographic areas. The HPI is a measure designed to capture changes in the value of single-family houses in the U.S. as a whole, in various regions and in smaller areas. The HPI is published by the Federal Housing Finance Agency (FHFA) using data provided by Fannie Mae and Freddie Mac. The Office of Federal Housing Enterprise Oversight (OFHEO), one of FHFA’s predecessor agencies, began publishing the HPI in the fourth quarter of 1995.

What transactions are covered in the HPI?

The House Price Index is based on transactions involving conforming, conventional mortgages purchased or securitized by Fannie Mae or Freddie Mac. Only mortgage transactions on single-family properties are included. Conforming refers to a mortgage that both meets the underwriting guidelines of Fannie Mae or Freddie Mac and that does not exceed the conforming loan limit. For loans originated in 2010, the loan limit was set by Public Law 111- 88. That law, in conjunction with prior legislation, provided for loan limits up to $729,750 for one-unit properties in certain high-cost areas in the contiguous United States. Conventional mortgages are those that are neither insured nor guaranteed by the FHA, VA, or other federal government entities. Mortgages on properties financed by government-insured loans, such as FHA or VA mortgages, are excluded from the HPI, as are properties with mortgages whose principal amount exceeds the conforming loan limit. Mortgage transactions on condominiums, cooperatives, multi-unit properties, and planned unit developments are also excluded.

How is the HPI computed?

The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinancing on the same properties. This information is obtained by reviewing repeat mortgage transactions on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac since January 1975. The HPI is updated each quarter as additional mortgages are purchased or securitized by Fannie Mae and Freddie Mac. The new mortgage acquisitions are used to identify repeat transactions for the most recent quarter and for each quarter since the first quarter of 1975.

What geographic areas are covered by the House Price Index?

The HPI includes indexes for all nine Census Divisions, the 50 states and the District of Columbia, and every Metropolitan Statistical Area (MSA) in the U.S., excluding Puerto Rico. OMB recognizes 366 MSAs, 11 of which are subdivided into a total of 29 Metropolitan Divisions. As noted earlier, FHFA produces indexes for the Divisions where they are available, in lieu of producing a single index for the MSA. In total, 384 indexes are released: 355 for the MSAs that do not have Metropolitan Divisions and 29 Division indexes. The starting dates for indexes differ and are determined by a minimum transaction threshold; index values are not provided for periods before at least 1,000 transactions have been accumulated. In each release, FHFA publishes rankings and quarterly, annual, and five-year rates of changes for the MSAs and Metropolitan Divisions that have at least 15,000 transactions over the prior 10 years. In this release, 309 MSAs and Metropolitan Divisions satisfy this criterion. For the remaining areas, MSAs and Divisions, one-year and five-year rates of change are provided.

How does the HPI differ from the S&P/Case-Shiller® Home Price indexes?

Although both indexes employ the same fundamental repeat-valuations approach, there are a number of data and methodology differences. Among the dissimilarities:

a. The S&P/Case-Shiller indexes only use purchase prices in index calibration, while the all-transactions HPI also includes refinance appraisals. FHFA’s purchase-only series is restricted to purchase prices, as are the S&P/Case-Shiller indexes.

b. FHFA’s valuation data are derived from conforming, conventional mortgages provided by Fannie Mae and Freddie Mac. The S&P/Case-Shiller indexes use information obtained from county assessor and recorder offices.

c. The S&P/Case-Shiller indexes are value-weighted, meaning that price trends for more expensive homes have greater influence on estimated price changes than other homes. FHFA’s index weights price trends equally for all properties.

d. The geographic coverage of the indexes differs. The S&P/Case-Shiller National Home Price Index, for example, does not have valuation data from 13 states. FHFA’s U.S. index is calculated using data from all states.

Is this insurance?

No. It is a financial agreement to pay the homeowner upon resale if their House Price Index drops. The contract is not purchased to insure against the loss of value in a particular real estate parcel; rather the contract pays out based on declines in the relevant market index, regardless of whether the home sells for a gain or a loss. A Home Price Protection® agreement holder cannot have an insurable interest in the House Price Index.

Who can sign up for this program?

Anyone who is a homeowner or who is buying a home can purchase a Home Price Protection® contract from EquityLock Solutions. Anyone who is selling a home can agree to purchase Home Price Protection® on behalf of their buyer.

How much does it cost?

The national average is currently 2.25%. For a home worth $200,000, the one-time cost would be about $4,500. We also offer the option to pay over 24 months, interest free.

When can I file a claim?

Upon the sale of the home after a 2-year waiting period from the time of enrollment and if the house price index in your area has gone down since enrollment. Protection is available for a maximum of 15 years.

Why is there a waiting period?

There are several reasons why we chose to impose a waiting period. The program is intended to encourage homeowners that are committed to remaining in their home for the long term, rather than as a speculative financial tool. Second, home price movements can be somewhat predictable over the short term, but over longer periods, the predictability is reduced. The waiting period prevents a situation where homeowners will increase their protection at times when the market is weak, impacting the sustainability of the program.

What if the homeowner loses more money upon reselling the home than they get from the Home Price Protection® payment? What if they make money upon reselling the home, but the index has gone down?

EquityLock Solutions will make a payment only when there has been a decline in the market index and only for the percent change in the index, multiplied by the protected value. Because the index represents the average performance of home prices, some people will experience losses greater than the decline in the index while some people will experience losses less than the decline in the index. It is possible that a homeowner could sell their house at a profit but still receive a Home Price Protection® payment if the index has declined in their neighborhood.

How is payment made in the event of a claim?

Upon reselling your house, we look at the change in your market index. If there was a drop in the market, we pay for any difference, up to the contract maximum of 20%.

Are there different prices for different areas?

The fee for the Home Price Protection® contract is determined by individual geographical/market and personal considerations. Each market is different and some can be more volatile than others, thus the reason for a slight difference in the contract fee. The national average fee is 2.25% percent of the value of the home.

What happens if the homeowner defaults on their mortgage?

If the homeowner wants to sell their home in order to avoid a foreclosure then they will be eligible for a payment so long as the other conditions are met. However, if the bank has completed a foreclosure on the home, EquityLock Solutions will not make a payment.

What happens if the homeowner refinances their mortgage?

The homeowner would still be enrolled in the Home Price Protection® plan. However, the homeowner will not receive a payment upon refinance – they must sell their home.

Do you accept all applicants?

It depends on the geographical area. There may be instances where we will have a limit to the number of contracts in a certain market. The value of the business model is in the ability of each contract holder to ‘hedge’ their risk. To do this, we rely on the law of large numbers and geographic diversification. Diversification is the method used to displace the risk. EquityLock Solutions diversifies across all aspects of the business including by geography, time, asset class and demographically. Accordingly, EquityLock Solutions reserves the right to determine how much business it will do in a particular area over time.

Would homeowners stop maintaining their home or try to sell it at an artificially low price if they had this protection? Is there a moral hazard problem here?

This is one reason that the program is structured based on the market indexes rather than on the particular home value. We want homeowners to act like homeowners, not renters. A Home Price Protection® payment is based only on what happens to the market price index, not what the home sells for. Homeowners have every incentive to maximize the resale value of their home – they can make money on the resale of their home and still get a Home Price Protection® payment, if the index has dropped. The contract is an incentive to help homeowners keep their home and maintain it.

Is this viable long-term so that I can expect to benefit from it if I need to make a claim in say, 5 or 10 years?

Markets are always cyclical and changing so it can be a good ‘risk’ hedge whether you buy in down or hot markets. Truthfully, many people will not make a claim, either because they are not moving in a particular year or their area is not suffering a decline. Given this, even if a majority or all markets fall in a given year, the historical ‘turnover’ rate of homeowners is enough to allow us to generate sufficient positive cash flow to meet our financial obligations long term.

If this program works so well, then how come the private sector hasn’t already tried it? How come there are few other similar companies?

Prominent economists have been advocating it since 2002 and the concept traces its origins to the mid 1970′s when Lincoln Park, IL implemented a type of home equity protection. In the midst of the foreclosure and financial crisis in 2008, Chairman of the Federal Reserve Ben Bernanke called on the private sector to solve the problem of lost confidence by bringing home equity protection to the market. Several companies attempted to create the protection that consumers needed. However, the process of forming a new industry is a large undertaking which takes considerable capital, time and specialized expertise. Few organizations possess all the necessary elements required to be successful. For example, the private mortgage insurance industry wasn’t “invented” until 1957 and required immense expertise, capital and perseverance to create. As it increased, it allowed an additional 1 million homeowners a year to get into a home and now 95% of all home purchases have a mortgage. In a similar way, EquityLock Solutions is rebuilding the faith and trust in the real estate industry by protecting home buyers and home owners from future home market declines doing what Ben Bernanke requested the private sector do back in 2008.

What’s the difference between the market value EquityLock Solutions determines and an appraisal by a local professional?

The market indexes we track simply follow and report the trends. It has nothing to do with an appraisal. It shows the combined sales and value in your area.

Wouldn’t people who knew that prices were going to decline in their area be more likely to sign up?

Perhaps. Our goal is to provide greater peace of mind to homeowners, whether the market goes up or down. People will feel more comfortable living where they want, regardless of what direction the market takes. To manage our risk, there may be limits to how many contracts we’ll do in a certain area.

What’s the difference between this and mortgage insurance?

Mortgage insurance pays the lender if on resale there’s not enough equity on the loan. EquityLock Solutions pays the buyer if there is depreciation in the value of the home price index. People buy private mortgage insurance all the time. All that does is protect the lender. EquityLock Solutions protects the Homeowners equity from home price index declines.

If you’re going to buy mortgage insurance, why not secure your interest in the home’s value as well?

It’s low cost protection for your largest and most important investment, your home.

Don’t house prices usually go up?

While on an aggregate level, the US housing market has performed well. However, house price declines are fairly common and can have disastrous consequences for homeowners. Many markets have experienced steep declines at one point or another in their history. Examples of regional declines include the “oil patch” states in the mid 1980s, Detroit in the early 1980s, the Northeast in the early 1990s and California declines in the 2000s. Price declines in each market are more common than at the national level – in fact, the volatility of combined home prices in some areas are almost as great as the volatility of the stock market. For example, more than 50 percent of homeowners who purchased a home in the early 1990s saw their home indices decline in the following five years, by an average of 13 percent. In Syracuse, N.Y. in 1997, more than half of homeowners selling their home that year sold at a loss. Even a small decline in home prices can completely wipe out a Homeowners equity, prevent them from moving or refinancing their home, and even force them into bankruptcy. Professor Shiller’s research concluded that the risk of losing money in a home market was far greater than the risk of natural disaster or theft to a homeowner, yet nearly 100% of homes have Homeowners insurance and home equity protection is just emerging from EquityLock Solutions. The time has come to stop taking the risk!

Do people really care about home price trends when they are looking for a home?

Home price trends are an important consideration for most homebuyers when they decide where to live. People usually think of their homes as their primary investment, as well as a place to live. With Home Price Protection®, homeowners can live where they want without the worry of, “Is our home going to lose value?” The Home Price Protection® contract would encourage them to purchase a home in a neighborhood that they liked but where they perceived property values as “shaky.”

If people were going to live in the same house forever, why would they want this protection?

Home Price Protection® is generally not for people who intend to stay in their home forever; that’s why we have a payout maximum limit of 15 years. Over a long period of time, inflation tends to move the price index upwards. But, there are unexpected events that happen in people’s lives, such as loss of job, divorce, injury and illness that may force a homeowner to sell. Those people will want the security that comes with Home Price Protection® from EquityLock Solutions.

Why don’t you just pay out based on home loss rather than the market decline? Couldn’t somebody’s actual loss experience on their home differ substantially from the Home Price Protection® payment they would get?

Aside from the market value, there are other things that could affect the market value of a home, such as its condition, landscaping, paint etc. Home Price Protection® acts as an incentive for an owner to maintain their house, since we don’t pay out based on the sold price. Home Price Protection® is a contract pegged to the market index. However, the indexes are designed to follow the actual movements of individual home prices. Contact us directly for more information.

Wouldn’t Home Price Protection® encourage people to sell and therefore take advantage of an EquityLock payment?

Consumers do not have an incentive to sell their homes merely to take advantage of a Home Price Protection® payment. Regardless of where the index is, the transaction costs, realtor costs, emotional costs and other considerations involved in a move are likely to rule the day. In fact, in many circumstances, Home Price Protection® may be likely to encourage people to stay in their homes. Currently, when prices are perceived to be on a verge of a decline, people may decide to sell their home before they are hit with the economic loss. With Home Price Protection®, since people are protected against the decline, they can afford to stay. They would simply move when it is most convenient for them to do so, based on the changes in their personal lives. It is true that there are certain circumstances under which people might be likely to move away if they had Home Price Protection®, whereas today they would be likely to stay put. This situation could arise if the market is down when a homeowner has lost his or her job and/or has better job opportunities elsewhere. Because their home is “under water” in these situations, many people today may choose to stay rather than move and either default on their mortgage or write a big check to the bank at the closing. With Home Price Protection®, they might be able to sell their home and move.

 

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