Would homeowners stop maintaining their home or try to sell it at an artificially low price if they had this protection? Is there a moral hazard problem here?
The potential for a ‘moral hazard’ is one reason Home Price ProtectionTM contract payments depend on market indexes, rather than on the value of particular homes. Homeowners have every incentive to maximize the resale value of their home – they can make money on the resale of their home and still get a Home Equity Protection payment, if the index has dropped. The contract is structured so that homeowners retain the incentive to maintain and maximize the value their home. • How will the EquityLock Financial be able to make payments? In addition to diversifying risks through our underwriting practices, as discussed above, EquityLock Financial maintains financial reserves to make payments in the event that prices fall. We maintain enough reserves to cover expected payouts up to a “Catastrophic Payout Level.” A catastrophic level is the decline of 100 percent of the markets in the U.S. by a certain percentage every year and adjusted for projected mobility rates. These reserves cannot be us
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