Home Equity Protection

Home Equity Protection

Home equity protection generally comes in the form of a contract that pays the buyer of protection if a particular home price index declines in value. The buyer of protection is typically a homeowner that wishes to protect the value of their home [cite web |url=http://protectyourhomeequity.com |title=Lighthouse Group Description of Products |work=Lighthouse Group Home Equity Protection] , but many home equity protection programs allow speculators to purchase contracts in areas where they believe that home prices will decline so that they can benefit from home price declines.

The term first entered the mainstream in 2002 as several scholars at Yale University [ cite web |url=http://icf.som.yale.edu/home_equity.shtml | title=Yale University Home Equity Protection study |work=Yale School of Management] worked in conjunction with a program in Syracuse, NJ, which was developed with the intent of increasing home ownership in neighborhoods on the verge of collapse that were marred by ever declining home prices. [ cite news | url=http://www.forbes.com/2002/08/28/0829whynot.html |title=Price Protect Your Home |date=2002-08-29 |work=Forbes.com] The Syracuse non-profit program, called Home HeadQuarters, was sponsored by the Syracuse Neighborhood Initiative, and a homeowner could protect the value of their home for a one-time fee of 1.5% of the home's value. In many cases, a local organization would pay the fee for the homeowner if they agreed to live in the home for 3 years. Similar programs were developed in other municipalities to encourage homeownership in specific areas that were considered to be at risk of losing home value due to increased rental conversions and other factors.

Lockout periods were required in many of the early programs, and prevent the owner of the home equity protection from collecting for some period of time. Reasonable lockout periods range from 1 - 3 years, but some programs require lockout periods of as many as 15 years, which is generally considered too long as it is a rare case for a home to lose value over any historical 15 year period in the United States (in most cities).

Hedging

Any protection contract is essentially providing a hedge to the owner against declining home prices. The provider (protection seller) of the contract will generally have a significant reserve in place and will also hedge their risk using housing futures from the CME Chicago Board of Trade and other real estate short strategies to help mitigate losses.

Payouts

Losses are generally measured by a nationally recognized house price index such as Office of Federal Housing Enterprise Oversight (OFHEO) or the S&P Case-Shiller index.

Differences from Insurance

Most home equity protection products are not insurance and do not require an insurable interest from the buyer of protection.

waps

There are some similarities with swaps, particularly total return swap and credit default swaps.

References

ee also

*United States housing bubble
*Chicago Board of Trade
*Real estate bubble
*Recession of 2008
*Real estate pricing
*Real estate appraisal
*Real estate economics
*Real estate trends
*Creative Real Estate Investing
*Deed in lieu of foreclosure
*Foreclosure consultant

External links

* [http://protectyourhomeequity.com Lighthouse Group, a national provider of HEP contracts with free quotes and examples on line]
* [http://www.forbes.com/2002/08/28/0829whynot.html Price Protect Your Home ] - from Forbes
* [http://www2.standardandpoors.com/portal/site/sp/en/us/page.topic/indices_csmahp/0,0,0,0,0,0,0,0,0,1,1,0,0,0,0,0.html S&P Case/Shiller Home Page]
* [http://www.ofheo.gov/ OFHEO's Home Price Index]
* [http://www.syracusesni.org/equitysite/faqs/faqs.html Home HeadQuarters] - The Syracuse New York Home Value Protection Project.* [http://www.equitylockfinancial.com Equity Lock, national provider of contracts, some examples on line]
* [http://icf.som.yale.edu/home_equity.shtml Yale International Center for Finance] - Generic discussion of Home Equity Protection, and the Syracuse NJ program from Yale University.
* [http://blownmortgage.com/2007/09/22/how-to-protect-your-home-equity-in-a-falling-market/ Other ways to protect your home equity] - from Blown Mortgage.


Wikimedia Foundation. 2010.

Игры ⚽ Нужна курсовая?

Look at other dictionaries:

  • Home Ownership and Equity Protection Act — ( HOPEA) A 1994 Federal statue enacted to address perceived abuses in high cost home mortgage lending. Final rules implementing this law where adopted by the Federal Reserve Board as amendments to Regulation Z, Truth In Lending in December 2001.… …   Financial and business terms

  • Home Ownership and Equity Protection Act of 1994 (HOEPA) — In September of 1994 President Clinton signed into law the Home Ownership and Equity Protection Act of 1994, written by US Rep. Joseph P. Kennedy (D Mass). The law requires certain disclosures and clamps new restrictions on lenders of high cost… …   Wikipedia

  • Equity stripping — Equity stripping, also known as equity skimming or foreclosure rescue, is any of various predatory real estate practices aimed at vulnerable, often low income, homeowners facing foreclosure in the United States. Often considered a form of… …   Wikipedia

  • Equity Stripping — The process of reducing the overall equity in a property in order to avoid creditors. The theory behind equity stripping is simply that by reducing your interest in a given property, thereby reducing any equity, creditors will not go to great… …   Investment dictionary

  • Equity release — is a means of retaining use of your house or other object which has capital value, while also obtaining a steady stream of income, using the value of the house.The catch is that you have to re pay the income provider at a later stage, usually… …   Wikipedia

  • @Home Network — Infobox Defunct Company company name = @Home Network company fate = Bankruptcy foundation = July 11, 1996 defunct = October 1, 2001 location = United States industry = Telecommunication key people = William Randolph Hearst III, co founder and CEO …   Wikipedia

  • Bank of America Home Loans — Type Subsidiary of Bank of America Founded 1969 (Countrywide), February 2009 (Bank of America Home Loans) Headquarters Calabasas, CA, USA (Countrywide Financial) Cha …   Wikipedia

  • Dodd–Frank Wall Street Reform and Consumer Protection Act — Full title An Act to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end too big to fail , to protect the American taxpayer by ending bailouts, to protect consumers… …   Wikipedia

  • Social Protection — ▪ 2006 Introduction With medical costs skyrocketing and government programs scaled back, citizens bore more responsibility for their health care costs; irregular migration, human trafficking, and migrant smuggling posed challenges for… …   Universalium

  • Private equity in the 21st century — relates to one of the major periods in the history of private equity and venture capital. Within the broader private equity industry, two distinct sub industries, leveraged buyouts and venture capital experienced growth along parallel although… …   Wikipedia

Share the article and excerpts

Direct link
… Do a right-click on the link above
and select “Copy Link”