Innovation Trio: SwapRent, FARJHO & TARELV

Shared Appreciation through Shared Cash Flows – the New Economic Owning, Renting and Own-Rent Switching Concepts as well as Business Methods for Managing Real Estate Properties –

05/28/2008 What is the role of local city municipalities in all this?

FAQ #18: What is the role of local city municipalities in all this?

The SwapRent (SM) program is meant to be a Main Street solution, rather than another Wall Street gimmick. Despite many people’s infatuation with the Wall Street investment banks, there are indeed some credibility issues if we try to rely on these financial institutions to launch these new programs now. The blind infatuation and admiration will come to a sudden halt when you yourself become one of their victims. Having burnt many innocent investors’ billions of dollars around the world could you imagine these once high flying investment banks got something new again to sell to you now? On the homeowners side, could you trust those once high flying subprime underwriters to come up with a new invention that could really help homeowners more than helping themselves?

We have been in touch with most of the major commercial banks, mortgage lenders and Wall Street investment banks since as early as mid 2006. Many of them went to their demise as their staff continued to study to death our SwapRent (SM) proposal. Two years have passed since then. Many of these remaining financial institutions are having enough trouble fighting for their own survivals at the moment because the monthly expense burn rate could not justify their continuing operations since the previous mortgage underwriting and securitization money trees had withered. They are obviously not in the mood to talk about anything the could help our society in the long run rather than where and how to find the next credit line for their own survival at the moment. Helping homeowners and the local city economy obviously does not seem to be high on their current corporate agenda.

We have indeed been trying to engage the active participation of many municipalities. It makes perfect sense for local cities to play a major role to try to mitigate our current economic and soon to be social crisis for the benefits of their local citizens. It is a perfect opportunity for some of them to pro-actively set an example for the rest of the nation that indeed a privately funded free market program without spending any single cent of taxpayers’ money could solve both our nation’s worsening economic problems and social problems by helping homeowners prevent foreclosures and hold on to their own homes. Municipalities would as a result no longer fear the possibility of bankruptcy (e.g. Vallejo, CA) due to the decreasing tax revenue base derived from declining property value and increasing number of empty boarded homes in many of their cities.

Although we have spent tremendous efforts trying to inform and make our detailed solutions available to the US lawmakers, federal government officials, banking regulators, GSEs and housing agencies about the merits of SwapRent (SM) and HELM, we do not really have to rely on their direct help to get the program started in order to provide the economic benefits to the homeowners. Since the SwapRent (SM) based approach is a pure free market based solution, we do not need the lawmakers to make any new legislation to force anybody to do anything. The intention is primarily to inform them that a free market solution is indeed possible and currently available. Therefore there is no need to overreact and make any restrictive new legislations or to spend billions of taxpayers’ money to do charity work.

The benefits that SwapRent (SM) could provide to homeowners will have to start from somewhere locally. Engaging the municipalities will provide them a crucial role as the game keeper to weed out other potentially unscrupulous foreclosure scam artists to take advantage of an apparent demand of services and assistance in the local community. If the local city governments do not actively provide a credible solution their local citizens they may end up easy preys to those con-artists in addition to the risk of the increasing economic and social problems brought about by more empty boarded homes in their cities.

This could also be a good opportunity for many public state and local pension funds to get involved to act as the initial "economic landlord" investor to provide the homeowners with the necessary fair and equitable monthly subsidies in order for them to hold on to their homes by acting as the “economic tenants” of their own homes. This would not only help the residents and the local economy of the city but also could fit very well with the pension funds’ normal financing/investment objectives. Residential real estate investment such as single family houses has never been available as an asset class for institutional investors in the past due to various logistic problems until the “economic landlord” advantages offered by the SwapRent (SM) contracts become a reality. By adding the residential real estate exposures in their long term investment portfolios it will enjoy even more risk diversification benefits. The transparent market pricing provided by REIDeX will ensure that this would be a bona fide free market based solution, not tainted by a tax payers bailout or even an unnecessary charity image.

From our recent discussions with many of these local cities, it appears there could be many other immediate more urgent needs to apply the proposed SwapRent (SM) program. One such thing is to use the “shared appreciation” features of SwapRent (SM) for low income housing or first time buyers assistance program, in addition to the potential assistance for defaulting homeowners. Many already foreclosed or empty homes could be purchased by responsible city citizens due to the opportunity created by this new alternative way of offering housing affordability. The neighborhood and the local economy will therefore enjoy a major economic revival without having to commit lots of taxpayers’ money to redevelopment projects.

In the UK many local governments have always been very actively involved in all kinds of shared appreciation, shared equity or shared ownership schemes to offer alternative ways of housing affordability. As a result, irrespective of the increasing number of their own version of subprime defaults, the foreclosure problems will not reach the same biblical proportion that the US will experience in the near future.

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