Frequently Asked Questions

Home Price Protection^TM provides financial protection to homeowners in the event their home's market value declines at the time they sell their home. If the market has dropped when the homeowner sells, EquityLock Financial will pay the percentage market decline times the home's value no matter what the home is actually sold for.

EquityLock Financial uses several house price indexes. For example, the U.S. Government publishes indexes for each metropolitan area at www.ofheo.gov, and updates those indexes throughout the year. The Company also relies on appraisals and other valuation tools to determine the value of a market and a home.

No. It is a contract in which EquityLock Financial agrees to pay the homeowner upon resale if the market drops. The contract does not insure against the loss of value in a particular real estate parcel; rather the contract pays if the relevant market index has declined when a home is resold, regardless of whether the home sales for a gain or a loss. While Home Price Protection^TM contracts are not insurance contracts, to provide consumers with protections similar to those established by insurance regulations, we maintain our reserves in a custodial account that cannot be used for operations. For more information, please review a summary of our product or contact us for more information.

Anyone who is a homeowner or who is buying a home can purchase a Home Price Protection^TM contract from EquityLock Financial.

EquityLock will usually charge a fee of 1-2 percent of the value of the home, depending on the location of the home. For a home worth $300,000, the fee would be about $4,500.

Upon sale of the home after a 2-year waiting period from the time of enrollment, and if the market's index of housing value has gone down since enrollment. Protection is available for a maximum of 15 years.

Home Price Protection^TM contracts are intended to help homeowners reduce financial risks for homes in which they intend to live, not to encourage real estate speculation. Housing value declines can be somewhat predictable over the short term. But over longer periods, the predictability is reduced. The waiting period prevents speculators from using Home Price Protection^TM contracts to achieve short-term, speculative gains.

EquityLock Financial 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 in a geographic area, 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 homeowners could sell their homes for a profit but still receive a Home Price Protection^TM payment if the index has declined in their area.

When you sell your house, we look at the change in your market index. If there was a drop in the market, we cut you a check.

The fee for the Home Price Protection^TM contract is determined by individual geographical/market and personal characteristics. Each market is different and some can be more volatile than others. Because Home Price Protection^TM contracts provide a way to reduce risk, the contracts are priced according to their expected risk. Most contract fees will be about 1.5 percent of the value of the home.

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

Refinancing a mortgage will not change the terms of a Home Price Protection^TM contract. Homeowners refinancing their mortgage will retain their original contract. They likewise will not receive a payment upon refinance.

EquityLock Financial encourages all to apply. But there may be times when the Company will not be issuing new contracts in certain geographical areas. Or, there may be times the Company will limit the number of contracts in a certain market. This is because the Company's ability to provide homeowners the chance to 'hedge' their risk, we seek to diversify risks across all aspects of the business including by geography, time, asset class and demographically.

The potential for a ‘moral hazard' is one reason Home Price Protection^TM contract payments depend on market indexes, rather than on the value of particular homes. 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 Equity Protection payment, if the index has dropped. The contract is structured so that homeowners retain the incentive to maintain and maximize the value their home.

In addition to diversifying risks through our underwriting practices, as discussed above, EquityLock Financial maintains financial reserves to make payments in the event that prices fall. We maintain enough reserves to cover expected payouts up to a "Catastrophic Payout Level." A catastrophic level is the decline of 100 percent of the markets in the U.S. by a certain percentage every year and adjusted for projected mobility rates. These reserves cannot be used for operations of the Company and are maintained in third party custodial accounts managed by professional managers, and subject to restrictions on the investments. In addition, the Company may further reduce its risk by entering into hedge transactions with third party institutions and by purchasing insurance.

In any given year, most people will not make a claim under Home Price Protection^TM contracts, either because they are not selling their home that year or their area is not suffering a decline in real estate values. As a result, even if a majority – or all – markets fail in a given year, the historical 'turnover' rate of homeowners is enough to allow the Company to meet our obligations under Home Price Protection^TM contracts. So, yes; it is viable long-term.

Prominent economists have been advocating arrangements like Home Price Protection^TM contracts for years. Recently, broad growth in real estate values reduced the interest in such products. But the reality is that real estate is a cyclical market—it always has been, and recent real estate declines have reminded us that this remains true. Likewise, improved data on housing in specific geographic areas now makes it possible to track particular markets more effectively. So a combination of market developments has highlighted the need and ability to develop products like Home Price Protection^TM. The emergence of new housing-related products has happened before. For example, the private mortgage insurance industry wasn't "invented" until 1957. As it grew, it allowed an additional 1 million homeowners a year to get into a home. Industry forces are such that, in a similar way, EquityLock Financial can now help homebuyers reduce the risk of their largest investment: their home.

The market indexes we track simply follow and report the trends in a geographic area. It has nothing to do with an appraisal of any particular houses. The geographic index shows a broad average of housing values in the area.

Perhaps. Our goal is to provide greater peace of mind to homeowners, whether the market goes up and 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.

Mortgage insurance pays the lender if on resale there's not enough equity on the loan. Home Price Protection^TM contracts pays the homeowner if the value of real estate in the local area declines. People buy private mortgage insurance all the time. All that does is protect the lender, not the risk to a homeowner's equity if the local market declines. If you're going to buy mortgage insurance, why not protect your own interests against the risk that the real estate market will decline.

A Home Price Protection^TM contract for a $300,000 home, would cost about $4,500. There are various options to pay for the contract. In many cases, the homeowner would roll the cost into their loan, which would turn into $5 a month, the cost of a combo meal. In some cases, builders/developers and other business professionals would pay for this cost as a service to their customers. For many, this is a small price to pay to protect the equity in your home against market downturns.

On an aggregate level, the US housing market has historically increased in value. But housing price declines are fairly common, too, 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 earlier this decade in the 2000s. Price declines in a local market are more common than declines 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 housing values in their area 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 homeowner's equity, prevent them from moving or refinancing their home, and even force them into bankruptcy.

Home price trends are an important consideration for most homebuyers when they decide where to live. People usually think of the value of home equity as one of their primary long-term investments, as well as a place to live. With Home Price Protection^TM, homeowners can live where they want without the worry of "Is our home going to lose value?" The Home Price Protection^TM contract allows them to purchase a home in a neighborhood that they like, regardless of whether future property values are perceived as "shaky."

Because EquityLock Financial limits the term of Home Price Protection^TM contracts to 15 years, they are generally not for people who are confident that they will stay in their home forever. But, even for those who have no plans to sell their home, unexpected events can arise—such as loss of job, divorce, injury or illness—that may force a homeowner to sell. Even those who do not plan to sell their house any time soon, Home Price Protection^TM from EquityLock Financial can provide additional security.

The short answer is that EquityLock Financial does not want to eliminate homeowners' incentive to maintain their homes in good condition. Aside from the condition of the local real estate market, there are other things that could affect the market value of a home, such as its condition, landscaping, paint etc. Because Home Price Protection^TM contracts do not pay homeowners on the basis of a home's resale price, homeowners still have the incentive to maximize the value of their home.

Not really. Consumers do not have an incentive to sell their homes merely to take advantage of a Home Price Protection^TM 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^TM 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^TM, since people are protected against a drop in housing values, 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, however, that there are limited certain circumstances in which people might be likely to move away if they had Home Price Protection^TM, 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^TM, they might be able to sell their home and move.