Frequently Asked Questions
Before making a decision to purchase your diversification protection, is there a way to find out how my local market has performed over the last 1/5/10 years and prior versus a diversified national market index?
Yes, you can do so utilizing our user-friendly, proprietary Home Value Comparison Tool. Keep in mind when doing so that local home market prices are historically more volatile (price swings up and down – can be extreme) than a national average.* That’s due to the widely-accepted financial principle of diversification, which holds that volatility is reduced by spreading risk across multiple assets or markets; often referred to as spreading your eggs among multiple baskets versus one.
*Historic trends may not predict or be indicative of future performance.
If I live in a local market that has traditionally outperformed the national market, why would I want or need to purchase your diversification protection?
Our analysis indicates that local home markets that overperform the national average for periods of time eventually underperform that average in subsequent periods. Our product, the Home Diversification Agreement (HDA) provided by our parent company Home Diversification Corp (HDC), protects against this type of volatility over the long term, provides stability in your overall investment portfolio and delivers peace of mind not previously available. One should always keep in mind that although your local market may have outperformed the national average in the past, the past may not prove to be a good predictor of the future.
Exactly what kind of protection am I buying for my $19 average monthly cost? (based on a typical $225,000 home)
Our HDA agreement provides protection in a number of key areas:
- Equity in your home – In the event that home prices in your local area drop below a national home-price index average, we make up the difference by paying you when you sell your home.
- Job loss – In the event you experience loss of employment and are unable to pay your mortgage for a short period of time, our product protects you against potential default and foreclosure. If you lose your job and have registered for Unemployment Insurance in your state, for a nominal processing fee (which is paid from your account balance), HDC will make your mortgage payment from your account balance, enabling you to maintain your home and keep your credit in good standing during a period of financial distress.
- Default and foreclosure – In the event you are unable to pay your mortgage for an extended period and are forced to sell your home at a time when prices in your local area drop below a national average. If you also have negative equity, our protection may provide the needed payment to enable you to pay off your mortgage at the time of sale. Without this protection, selling your home would require an out of pocket payment to bring the equity in your home up to a level that pays off your mortgage – exactly at a time when you do not have cash for such a payment. The funds we provide may allow you to sell your house in a manner that keeps your credit in good standing, enabling you to move on in life.
- Stable and reliable investment – Our product provides protection against loss of equity in what is likely your largest asset – your home, transforming it into a more stable and reliable investment. The result is the potential for reduced-risk in your retirement, as many homeowners choose to access that equity by selling their homes late in their careers or in retirement.
- Peace of mind – Knowing you have protected the equity in your home, reduced the likelihood of default and foreclosure, and bolstered your retirement nest egg (more stable asset) reduces the stress often experienced by homeowners, especially during periods of volatility. Doing so provides a benefit hard to measure – peace of mind.
*Currently in legal and regulatory review for approval. It is our intention to provide this feature.
Do I have to purchase your diversification protection when I originally purchase the home? Or can I do so at any time thereafter?
How do I purchase your protection?
Once our product launches to the public in February 2020, new home buyers will purchase at origination. As part of that process, your lender will collect all information needed. The underwriting and appraisal processes required to qualify for our Home Diversification Agreement are completed when you obtain a mortgage. We will have an additional set of documents for you to sign, including the Agreement and associated Lien documents. As is done with mortgages today, you will sign documents during the settlement process acknowledging the monthly fee, payout (or pay in) amounts at expiration and other stated provisions, as well as any penalties for failing to fulfill your payment obligations. For existing homeowners, qualification, paperwork and payments all work through a servicer – our own, or your existing servicer if they have an agreement with HDC.
Is this product considered a mortgage? If so, why do I have to take out a second mortgage to buy your diversification protection?
Our diversification product is not a mortgage – there is no balance that requires a monthly mortgage payment. It is considered a financial instrument that is secured by a lien, much like those issued by contractors for work performed. Technically, it’s a second lien with an initial zero-balance that will fluctuate positive or negative depending on the performance of your local market relative to a national market index. The second-lien requirement is used to secure repayment of any outstanding balance only at when you sell your home (or cancellation of the HDA contract) in the event your local market outperforms the national market.
Does the second-lien make it harder for me to refinance my first mortgage if interest rates fall?
Our Home Diversification Agreement states clearly upfront that we agree to subordinate our lien to make it easy for you to refinance or to obtain a Home Equity Loan.
How am I able to avoid using and paying for PMI, FHA or similar using your product?
We believe that homeowners utilizing our home diversification agreement will eventually enjoy the benefit of mortgages with lower down payments (without PMI), creating saving of hundreds of dollars in monthly PMI and the real possibility of a reduced interest rate. This is based on preliminary discussions with banks and creditors who have indicated support for a measure of this type,* given the significant reduction in their own credit risk due to the reduction in homeowners’ foreclosure risk when a home diversification agreement is in place.
*The feature and benefits will not be available initially. We are currently in talks with creditors and securitizers on this offering. It is our opinion this feature will become available to homeowners in the foreseeable future.
Given the use of local and national home price indices (HPI), does the price I pay for my home and what I sell it for factor into whether I benefit from buying your diversification protection? Or is the potential benefit based exclusively on the relative performance of the local-HPI versus a national-HPI?
No – you would price and sell your home as you normally would. Using home price indices keeps in place appropriate homeowner incentives to maintain their properties and negotiate the best sales price. (see Scenario Descriptions table below, scenarios 1 and 2)
Are there numeric examples of what my Home Diversification Agreement balances would look like for different home price performance scenarios?
If my local home-price index rose faster than home prices nationally when I sell, do I owe Home Diversification Corp anything?
You may; please see the chart in question #10, scenarios #5 and #6 for relevant scenarios. It is important to note that in many cases the amount owed to HDC may be fully covered by the Sales Price.
How can I determine what my benefit payment might be before selling my home in an underperforming local market? How do I determine my liability before selling my home in an overperforming local market?
You will receive monthly statements indicating the positive or negative balance in your Home Diversification Corp account. You can also view your balance at any time by accessing your account through the HDC website. At closing, you will receive the payoff or payout balance amount.
Can I cancel the diversification protection at any point if my local-HPI index has outperformed or underperformed to the national-HPI? If so, how? Is there a cost or penalty to do so?
There are two scenarios: your account could be either “in the money” or “out of the money” at the point in time you are considering a cancellation. “In the money” means that your account has a positive account balance; if you were to sell in that instance, HDC would owe you money at closing. “Out of the money” means you have a negative account balance; if you were to sell in that instance, you would owe HDC money at closing. Early termination (“in the money”) – you may terminate your “in the money” contract at any time but your payout is limited to 50% of the positive balance (the remainder is forfeited to HDC). Early Termination (“out of the money”) – you may terminate your “out of the money” contract at any time but that requires full payment to clear any “out of the money” position.
What happens if I fail to maintain my monthly payments? Will my agreement be cancelled even if I have a credit balance in my account?
Non-payment (“in the money”) – If you stop making the required monthly payments, that normal payment amount will be deducted from your balance plus an additional $10 penalty for each payment (the “payment deduction would be their normal payment plus $10) for up to 6 months (provided there are adequate positive funds available to cover that time period). If you do not resume making payments prior to the end of those six months of forced-charged late payments (or sooner if there are less than 6 months of positive balance available), your contract will be closed out following the process for “Early termination (in the money)” positions. Non-payment (“out of the money”) – If you stop making the required monthly payments, payments will continue to be charged against their balance plus an additional $10 penalty for each payment (the “payment charge” would be their normal payment plus $10). While in an overdue status, we reserve the right to undertake collections activity and you will be responsible for any costs associated with those actions. Upon the sale of the property, all amounts due will be required to clear the property title.
What are the tax implications of utilizing a Home Diversification Agreement?
We are not tax consultants and offer no tax advice – you should consult with a tax advisor for your specific situation.