Keith Mestrich, president and CEO of Amalgamated Bank, believes that people should not have to worry about a real estate market collapse when they decide to stop renting and buy a home. Therefore, his bank offers down payment insurance for homebuyers that want to hedge themselves against a market downturn. Mestrich claims that if home price drop after someone with down payment insurance purchases a new home, they will at least receive a portion of their down payment back.
According to the article, Amalgamated bank’s insurance plan is available at no cost in the bank’s First-Time Homebuyer +Plus program, covering down payments of up to 5 percent of the home’s purchase cost. I suppose non first-time homebuyers will have to pay a premium based on how much coverage they want.
Just like any other investment, this is a gamble. If you elect the coverage and the market value of your home never dips below the initial purchase price, your money obviously stays with the bank. It’s kind of like shorting a stock, as you’re betting on the real estate market to go down.
I see this is being a good thing for two reasons.
- It might make it easier for people thinking about buying a home to pull the trigger.
- Homeowners may go ahead and decide to sell their home even if the market is down.
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