NEW YORK (MainStreet) — Defaults on upside down mortgages remain a real possibility with more than 7.1 million homeowners currently "underwater" and almost another two million "near underwater."

One new potential solution for homeowners is to purchase underwater mortgage protection, a new product being offered by AmTrust Financial Services, a New York-based multinational insurance holding company. The coverage aims to provide a safety net for both homeowners and lending institutions.

This option protects homeowners with negative equity when they may want or need to sell their current home and helps them to pay off their mortgage and closing costs. Homeowners can avoid the negative effects associated with a foreclosure or short sale.

"Given the constant fluctuation of the housing market and continued fallout from the last recession, homeowner mortgage protection insurance was needed to address a problem that has trapped millions of Americans," said Mark Kayton, co-founder of Underwater Mortgage Protection.

A homeowner can purchase the coverage anytime while he owns the home if it is his primary residence and he has at least 10% equity. The company verifies the homeowner's mortgage is underwater and gives him a guaranteed sale date, which ranges from 90 days to six months, he said.

A homeowner who has a mortgage of $200,000 would pay $30 to 40 each month, Kayton said.

"We saw a significant gap and this gives homeowners some affordable protection," he said. "It's a personal decision. We just saw a major need in the marketplace."

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The coverage can be a good option for people who need to move because of a new job, divorce, unemployment or a change in family size.

"Previously homeowners could only buy policies to protect themselves from failure to meet mortgage demands resulting from death or disability," said Kayton. "But underwater mortgages have unfortunately become a common occurrence that may be more likely for many homeowners. As an added benefit, Underwater Mortgage Protection not only defends homeowners, but also financial institutions from the liability associated with defaults and foreclosures, helping to prevent the potential need for taxpayer-backed bailouts."

The product is launching in Georgia and North Carolina in December and will be available in other states soon.

Depending on a homeowner's financial situation, consumers should consider all of their options, such as renting out their home for the short term if they can handle the responsibility of being a landlord, said Jeff Golding, CEO of WilliamPaid, a Chicago-based company which allows people to build credit through paying their rent online.

"This product could be a great solution for many homeowners, but they should seek all viable options that may exist," he said.

"Before you decide to sell, take a loss or seek a foreclosure, consumers should look at ways to reduce their debt as quickly as possible and apply additional money even if it is $10 to $20 per month to the principal. You should also explore renting out your home, especially if your home is in a good location such as being near a corporate headquarters."

--Written by Ellen Chang for MainStreet