With the goal of protecting homebuyers’ down payments from falling market values, Amalgamated Bank has teamed with ValueInsured to offer the company’s +Plus product on all eligible mortgages it finances.
The protection service will allow homeowners to insure down payments of up to 20 percent for a maximum of $200,000.
While the concept of down payment protection seems applicable in volatile markets with historical price fluctuations, the +Plus program has a number of catches and only seems to benefit borrowers who purchase lower-valued homes.
If buyers put $20,000 down on a $200,000 home they would pay ValueInsured a one-time premium of roughly $1,200. These homeowners are now insured for seven years on that down payment.
However, if those homeowners sell their homes at a loss they might not recoup all of their lost equity.
Why? Because ValueInsured measures home value according to a government index, which measures prices by state, not by city, submarket, neighborhood or individual property.
Additionally, according to Realtor.com, homeowners have to wait two years before they can file a claim and the home must be owner-occupied. Insured homeowners will only receive a check for whatever is less, their down payment, lost equity or the drop in the index.
Volatile markets?
With offices in Washington, D.C. and New York City, two markets where a high percentage of homes are said to be losing value, it is understandable why Amalgamated would offer such a down payment protection product.
According to data from Weiss Residential Research, 45 percent of homes in the D.C. and NYC metros dipped in value by 2 percent during a semi-recent year-over-year basis.
Last month in D.C. the median sales price stood at $506,000, which was up only slightly from the $500,000 figure seen in March 2015. Amalgamated is likely to be making more loans in the district this year, as the volume of closed sales in March was up by 12 percent year-over-year, reaching 653 transactions. Additionally, Pending sales where up 13.2 percent totaling 942 sales.
Under the partnership first time buyers utilizing an Amalgamated Bank loan can protect up to 5 percent of their down payment at no cost.
