For most people, their home is their most important financial asset - and it is often the best investment they will make. They may rely on their home equity to help them start a business, finance their child's education, and save for their retirement. Yet home prices are volatile and future prices are not predictable beyond the short term; even "stable" areas can be subject to significant price declines. Moreover, most homeowners are highly leveraged in their homes. Consequently, homeowners can lose all of their equity and may potentially default on a loan or abandoned the property, resulting in bank foreclosures.

Lenders have an inherent financial interest in keeping homeowners in their homes and current on their mortgages. According to Freddie Mac Deputy Chief Economist Amy Crews Cutts, studies show that foreclosure costs average $58,792 and take 18 months to resolve. HVP helps to combat this enormous price by preventing foreclosures before they occur. Homeowners have an economic incentive to default on their mortgage when the market value of their home dips below the outstanding balance on their mortgage. When home values drop, homeowners who have HVP know that they will receive a HVP payment when they sell - but HVP will not pay them anything if they lose their home through foreclosure. By keeping the value of the property to the owner (market value plus HVP payout) above the outstanding mortgage balance, HVP reduces the incentive to default.

Moreover, HVP can be used as a workout tool to prevent foreclosure when defaults have occurred in a down market. For example, assume a family is in default on their $60,000 mortgage. They would like to work out a short sale or deed in lieu of foreclosure, but the current market value of the home is only $54,000. If the family had purchased HVP for $60,000 of home value, and prices had gone down by 10% in the area where they lived, they would be owed a $6,000 HEP payment. This HVP payment would make up the difference between the $60,000 owed on the mortgage and the $54,000 home value, thus facilitating the short sale and preventing a foreclosure situation.

Since price risk is an important component of overall portfolio risk, we believe that HEP could substantially improve loan portfolio performance. In fact, our research team's study of FHA data shows that approximately 40 percent of all FHA losses since 1990 have occurred in a down market. The proportion of losses occurring in down markets is likely to be even higher for conventional loans.

By supporting the HVP program, Lenders will also realize significant marketing and community benefits. A lender offering to pay for HVP purchase is likely to capture most or all of the market of loan customers who are interested in HVP. Furthermore, Lender's support for this program is certain to highlight your organization as a lender that is second to none in its efforts to address the community development needs of Syracuse.