By Christopher Stevenson
Sometimes I see an idea that I think is so unique and interesting, I have to share it. I read an article in The New York Times yesterday about Working Equity Inc.'s Equity Protection program. With Equity Protection, a home buyer can pay 1 to 2.5 percent of their home's value (the percentage paid is based on the volatility of their area's real estate market) in exchange for the guarantee that they will not lose money on the sale of the home in the event of a market downturn.
Here's how it works, if I buy a $500,000 home in Madison, Wis., and buy an Equity Protection contract to protect my investment, the program takes a snapshot of home values in the 53719 ZIP code. If property values in my ZIP code have dropped by 5 percent in my area at the time I decide to sell, my Equity Protection contract pays me that 5 percent, or $25,000. Even if I am able to sell my home for more than $475,000, Equity Protection still pays the full 5 percent. Regardless of the amount of decrease in average market value, Equity Protection pays the difference.
I tend to be a skeptic, particularly now, after so many financial product innovations have blown up in our faces, but I hold out hope that Equity Protection or a similar program could help restore consumer confidence in some of the hardest hit regions in the country. If the program is designed with the consumer in mind rather than with the goal of lining corporate pockets, it stands to create a new level of consumer protection, one that could become a standard option in the home-buying process.
