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Joe Melendez is co-founder and CEO of ValueInsured, Dallas, a provider of down payment protection services. H has more than 30 years of industry experience. His background includes work in investment banking, real estate development and insurance. Prior to forming ValueInsured, Joe spent a decade developing residential properties. He started his career on Wall Street after earning a bachelor's degree from New York Institute of Technology.
MBA INSIGHTS: Tell us about your background and how it lead to you starting ValueInsured.
JOE MELENDEZ, VALUEINSURED: For more than 30 years, I provided financial solutions to individuals and business. During the great recession, there was a global recognition that homeownership had significant risk with no-risk mitigant "insurance" available to homeowners. Consider, in an instant, a family's lifesavings could evaporate without any fault on their part. Their home equity, vanished, solely as a function of declining home prices for whatever reason. A lifetime of financial security, college funding, retirement planning, and peace of mind, gone.
Homeownership is unlike any other "investment." First and foremost, it's a home full of memories and part of the American dream; a dream that for decades carried a silent risk that awoke in 2006 and left millions of families in financial ruin. I felt a responsibility to create a product that could provide peace of mind, financial security and reinvigorate a new American Dream where lenders could help protect consumers' from market forces.
INSIGHTS: What is it about the mortgage industry that intrigues you?
MELENDEZ: From the time I was a little boy, more than five decades ago, Americans have purchased homes exactly the same way our parents did. The mortgage industry needs innovation; no transformation. There needs to be a conversion to an industry that truly helps homebuyers, not just the financial industry. I knew I wanted to be part of that change, to create a product that promoted a social good.
INSIGHTS: Why did you start this company offering down payment protection?
MELENDEZ: ValueInsured was created to fulfill my vision of leveling the financial playing field for homebuyers and homeowners. Coming from a modest background, I understand savings, budgeting in weekly envelopes. While today savers use different tools, the element of sacrifice to save up for a down payment remains unchanged. ValueInsured, is ultimately not about me but about the American family and securing their hopes and dreams.
INSIGHTS: What is the catch with down payment protection?
MELENDEZ: When you focus on providing a social good there to society there is no catch. I reached out to world-class insurers to develop products that will protect homeowners from unforeseen changes in market conditions that could adversely affect the value of their home equity. Down payment protection allows families to thrive even in the face of adverse home market conditions. And in turn, lenders can feel like heros for looking out for their clients.
INSIGHTS: Why hasn't this been available to homebuyers before?
MELENDEZ: Sometimes the simplest risks require an explosion to bring them to light. Simply said, we did not need it until now. Before 2006, homebuyers were complacent, the vast majority having not experienced declining home values yet alone an implosion of home values, leading to one of the worst recessions since the great depression. Prices will decline again. It is the nature of this cyclical industry. During the last downturn, more than five million people took a credit hit that has taken them seven years to recover from. That does not have to happen anymore. They can protect their down payment and if the market down shifts with confidence knowing one of the world's largest insurers Everest Re stand behind down payment protection insurance.
INSIGHTS: What's in it for lenders to offer these new products?
MELENDEZ: Lenders need to differentiate and provide value through innovation. Let's face it, mortgages are a commodity, driven by price and service. The reality of this dynamic is there is always someone willing to be the cheapest creating a race to the bottom destroying profitability and shortchanging the borrower as the lowest price doesn't necessarily represent the best product.
INSIGHTS: How can lenders build this product into the loans they offer?
MELENDEZ: The simplest way to introduce a new product to the market is to build on a known behavior. Down payment protection fulfillment is similar to mortgage insurance. Down payment or Equity Protection is part of the mortgage transaction. The majority of homebuyers who demand down payment protection elect to have the cost of protection calculated into their closing cost which in turn can be funded through the mortgage. This reduces the need for additional out of pocket cash, thus making protecting homeowners equity, in some cases, their life savings easy.
INSIGHTS: How will these products change the mortgage industry, and the way people buy homes?
MELENDEZ: As I mentioned previously, the mortgage industry has been void of innovation. Protecting homeowner equity represents a sea change, a revolution of fairness and confidence. Americans buy all types of insurance and warranty product protecting their cars, appliances, cell phones but until today the idea of protecting their home equity was impossible. We believe our products will become an integral part of homeownership.
INSIGHTS: How do you think down payment protection affects agencies such as Fannie Mae, Freddie Mac, Ginnie Mae?
MELENDEZ: Our equity protection products benefit homeowners first and foremost, by protecting homeowners, you change risk across the entire credit spectrum including the risk of asset loss on the part of the lender. Since government agencies insure creditors from defaults, changing the outcome of a sale, i.e. no default, benefits the entire residential marketplace.
INSGHTS: How can loan officers who work on refinances offer equity protection to their clients?
MELENDEZ: Loan officer have a unique opportunity to help homeowners take some of their equity appreciation of the table, while insuring the equity that remains. Does the idea of having all your eggs in one basket comes to mind?
INSIGHTS: What is your vision for this product in the industry?
MELENDEZ: Our long-term vision for our down payment and equity protection products is they will become synonymous with homeownership. Lenders will see the how they protect everyone in the home buying eco-system by reducing and possibly eliminating defaults and foreclosures. When consumers think of buying a home, they will think of down payment protection as necessary as an appraisal.