Underwater mortgage insurance: solution in search of a problem?

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As more and more borrowers gain equity in their previously underwater homes, a new type of insurance has sprung up to help them avoid being in that position again: underwater mortgage insurance.

Kansas-based AmTrust Financial Services will launch Underwater Mortgage Protection (UMP) in three states in December and it will likely be available nationwide within a year, CNBC’s Diana Olick reports.

For an average monthly premium of $40 to $50, homeowners with at least 10 percent equity in their homes will get gap insurance on the value of their home should they decide to sell their house, thereby avoiding a short sale or foreclosure.

But the Consumer Federation of America points out that, for that monthly payment, consumers can “self-insure” by paying down their mortgage principal faster instead.

Source: CNBC