How to get the real estate market moving again is a question on everyone’s minds, and lately one idea in particular – equity insurance – is coming to seem like the answer.

The idea is simple at the core: With home prices in decline across the country, a lot of people who would like to buy a home are scared to take the plunge, fearing that if they have to sell in a few years’ time they’ll lose money. If that fear could be eliminated, economists argue, lots more people might be willing to purchase, starting a positive cycle of more sales leading to more purchases, and eventually, stable prices and a rising market.

Equity insurance could accomplish that, by promising to cover any gap between what the homeowner paid and what they’re able to sell the house for down the road.

It’s an idea long championed by some economists, including Yale University’s Robert Shiller (co-founder of the Case-Shiller Home Price Index), who wrote a paper in support of equity insurance as far back as 1999.

But with the country now in the throes of a housing slump, it’s been receiving more attention.

“There are a lot of people still sitting on the sidelines. Let’s give them an incentive to purchase now,” said Barry Bluestone, an economics professor at Northeastern University in Boston and also a strong advocate of equity insurance. “[With an equity insurance scheme] if no one took advantage of it, the cost to the government would be virtually nothing. But if a lot of people take advantage of it, it’s going to make it very unlikely that house prices will continue to fall.”

Last week, a consortium of real estate firms calling itself the Coalition for Recovery of Real Estate, proposed that equity insurance would be a better way to get thousands of REO properties off Fannie and Freddie’s, rather than converting those same properties to rental homes. And San Francisco-based private insurer Home Value Insurance has already begun offering an equity insurance product, making it available to homeowners in Ohio last month. The company plans to roll out the product to 15 more states over the next few months, according to a spokeswoman.

The Fine Print

But the devil is in the details.

In order for an equity insurance scheme to work, there have to be ways to block scammers from cashing in on the policies by manipulating the value of the insured home. Some steps that could prevent that are simple and cheap – making sure that homeowners have to own and live in the house for many months before the policy kicks in, for example.

“Scholars think [equity insurance should] only payoff in specified situations,” such as on death, or on relocation for a job, said John Clapp, director if the University of Connecticut’s Center for Real Estate. “The latter could be important because homeownership does slow the adjustment of the labor market if house prices have declined.”

But other important factors, like ensuring independent appraisals, require more in the way of investment and infrastructure, and could take time and money to roll out.

And other scam-blocking steps can make insurance less appealing to homeowners. Home Value’s product, for example, attempts to blocks scammers by tying payouts to declines in the market as a whole, using tools like Case-Shiller Index. If the index for a homeowner’s city had declined 10 percent between purchase and sale, then the insurance payout is 10 percent of the home’s value – even if their particular home sold for 20 percent less than what they bought it for.

Problems like that are why Bluestone said he thinks an equity insurance plan would have to be government-backed in order to work – only by spreading the risk across millions of homeowners would premiums be low enough to be appealing to buyers.

“The problem is that it tends to be more expensive if a private company does it. If the federal government does it, and you’re talking 1 million or 2 million mortgages, you’re spreading that risk across a huge number of units, in the same way [other insurers do] auto insurance,” he said. “My concern would be that if a smaller, private company tries to do this, the administrative costs would be higher and they’d have to charge a substantial risk premium.”

Fannie and Freddie are already on the hook for losses the longer the properties sit and the more the market declines, Bluestone said.

“What you need to do is sop up that excess inventory….if you don’t fix housing, the economy doesn’t come back.”