Although there are many ways of implementation, in its most basic form, all the homeowners need to do is to tell their existing lending bank what percentage (e.g. 50%, 75% or 100%) of the value of their house they would like to turn into economic renting (i.e. being the renters of their own homes) and for how long (e.g. 2, 5, 10 or 15 years etc.). That’s it. The bank will then convert their existing mortgages into HELM or FVCM to accomplish all that with very little or no cost to the homeowners (up to the lenders). After underwriting that new HELM or FVCM the banks will then use SwapRent (SM) to lay off their property value risks with the investors through the inter-bank market. The factor for the current defaulting mortgage borrowers in subprime or Alt A sectors to make that decision of what percentage and how long is how much monthly subsidy they’ll need to offset the increase in monthly payment from the old mortgage rate resets to avoid foreclosure.
Even as simple as that one would imagine there will be a lot of homeowners and investors educational work that needs to be done. Any innovation will require educational work. That is a very good thing. Introducing these new mortgage products will not just help homeowners hold on to their homes and bail out investors, it will also help many Americans keep their jobs, and even create new types of jobs in the mortgage industry, real estate industry, the banking and the investment advisory industry (as illustrated in the slide #6 in the presentation file). This is also what our economy desperately needs now, to keep those American workers involved in the already impaired mortgage and financial services industries employed. Financial sophistication has its advantages. The need to educate the homeowners and investors will create many more jobs in our economic society.
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Innovation Trio: SwapRent, FARJHO & TARELV 