Employment loss protection now available for home buyers

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It is blazing across the real estate sky like a meteor — and so far the Job Loss Protection program, in existence just since first quarter 2009, is creating its own “shock and awe” reaction among economy-weary home sellers and brokers.

The concept is simple.

Similar to offers by automakers and some home builders, the program makes monthly mortgage payments if buyers are laid off. Backed by the Washington-based Rainy Day Foundation and marketed by Web and real estate systems marketing company Creative Alliances, the program is being targeted to real estate companies for an upfront fee.

The program covers payments of up to $1,800 per month for six months if the borrower’s job is lost within 24 months of closing. Industry statistics show that new homeowners are most likely to default within the first two years of buying a house.

To be eligible, buyers must be working a minimum of 30 hours per week at the time of closing and can’t be self-employed, independent contractors or active-duty military.

So far, only a handful of real estate companies throughout the country have adopted the program. Allen Tate Co. in the Carolinas, Realty USA, Iowa Realty, Long and Foster, and Prudential Georgia Real Estate are all on board.

In the Pikes Peak region, Harry Salzman of Salzman Real Estate Services appears to be the first local broker to join the program.

A 37-year veteran of the residential and relocation home sales business and self-described “early adapter” when it comes to innovative home marketing, Salzman said he learned about the plan from a fellow member of a national networking organization.

“He works for Allen Tate, the largest real estate company in North Carolina where they just announced they were coming out with the program in April and launched it in May,” Salzman said. “They’ve already seen a big increase in listings and have closed five sales attributed directly to Job Loss Protection.”

Following Hyundai

Salzman said results of a similar program offered by Hyundai showed positive results.

“Sales were up 36 percent in first quarter,” he said. “Consumers bought their products instead of cars made by G.M. or Chrysler. Now the rest of the market has caught on and it’s all you see on TV.”

He wrote about the program in a June newsletter sent to clients — and his hunch that stressed sellers would welcome a way to differentiate their homes in the marketplace has already proven out.

“I was intrigued right away and called Harry right away,” said Richard Fredricy, whose Monument area home is listed with Salzman. “I don’t have to sell my house right away, but it’s been on the market a while and selling it is part of our retirement plan. Who knows? It’s not expensive, and as a seller, it might be a tipping point if a buyer is looking at my house anyway. I’m not sure if offering six months of mortgage payments would be enough, but it couldn’t hurt.”

Not an insurance product

But what exactly is the Jobs Loss Protection Program? One thing it definitely isn’t is insurance.

On its Web site, Creative Alliances posts frequently asked question about the program, including: “Is this like life or disability insurance?” The company’s answer was, “No, mortgage payment protection is an involuntary unemployment plan that covers the purchaser(s) in case of involuntary job loss only.”

That’s a sign that it doesn’t make much sense from an actuarial perspective, said Wayne Six, president of Six and Geving Insurance.

“In risk management, you have to look at the cost-benefit,” he said. “In this case, the Rainy Day Foundation is betting that not many buyers will have to be paid $10,800 over a period of six months”

And even the program’s promoters expect demand to subside once the economy returns to the new “normal.” But it won’t go completely away, said Alan Pyles, president of Creative Alliances.

“I see this program building for the next two to three years, and then leveling off,” he said. “After the economy improves, I think it will still be around as a useful tool for fringe markets.”

Despite the actuarial challenges, the program appears to be acceptable to the government’s secondary mortgage providers.

Fannie Mae spokeswoman Amy Bonitatibus said she saw no conflict with existing mortgage regulations.

“It’s just the foundation choosing to do its own version of a mortgage protection insurance product — like the Bank of America might offer,” she said.

The program also has been approved as a seller concession on VA and FHA loans — and conventional lenders have yet to express concerns.

“The lenders should see a clear benefit,” said D.J. Stephan, president of Relocation at Allen Tate Co. “It’s part of the upfront offer rather than a financing issue. Besides, they know if their borrower loses their job, they’re going to get paid.”

So far, Pyles, Salzman and other real estate industry professionals are betting on the Job Loss Protection program’s ability to re-energize sagging residential sales market.

Which is a sentiment shared by Six.

“It’s a useful feel-good sales tool,” he said, “especially in this market.”