FAQ #22: What are the advantages of the SwapRent (SM) program over the new Housing Bill?
SwapRent (SM ) and its embedded mortgage product HELM were originally created to offer people better ways to manage their property ownership. Low income families could use it to enjoy bigger and better homes due to the true housing affordability offered by the SwapRent (SM) methodology (leveraging function). Affluent people could also use it to prevent the potential wealth erosion due to property value loss created by incompetent national economic and monetary policies (hedging function). The SwapRent (SM) business methodologies are the results of over 6 years’ dedicated independent and privately funded research, not an emergency plan hastily put together by unprepared people to deal with these issues in response to a national crisis. The major ideas in the SwapRent (SM) related pending patents were to come up with a better plan than the conventional shared appreciation mortgages that the solution in the new Housing Bill really belongs to. Here are a few examples of the most obvious advantages of SwapRent (SM):
1. It saves homeowners money and hassle. There is no need to do re-financing at all for the defaulting homeowners to get assistance to hang on to their homes. They could save plenty of unnecessary re-financing cost to be paid to the financial institutions, including the 1.5% mortgage insurance fee to be paid to the federal government.
2. The SwapRent (SM) program could offer transparent fair value pricing for the shared appreciation and contract early termination possibilities. The homeowners could simply get a fair value monthly subsidy in return for sharing part of the appreciation with the local city and county governments for a certain period of time so that they could continue to afford the mortgage payments and hence continue their home ownership and residence. The local city and county governments in turn transfer that shared appreciation potential to other free market investors for a fair value which represents the monthly subsidies that the homeowners would receive. SwapRent (SM) and HELM simply quantify the shared appreciation potential and its associated risks, extract them out from the shared appreciation mortgages and form a secondary trading market to offer fair value price discovery and early termination possibilities for homeowners.
3. There are a lot more options or choices for the consumers and potential investors. The shared appreciation agreement maturity could be 2, 3, 5, 10, 15, 20 or 30 years as compared to the one and only 30 years fixed rate mortgage option offered in the Housing Bill. The shared appreciation percentage could also be selected by the homeowners such as 10%, 20%, 30%, … 50%, 60%, 70%, … or 100% as compared to the one and only fixed schedule offered by the Housing Bill. To draw an analogy, if the Housing Bill offer is like one molded plastic toy, the SwapRent (SM) approach could be considered as a LEGO (TM) approach which building blocks could be put together to recreate any color, shape or form of a particular toy when necessary due to its quantified-component approach. SwapRent (SM) rates and flexible contract terms are completely negotiable between homeowners and investors in a free, open and transparent market. It is not a “take it or leave it” one recipe rescue plan approach as offered by the Housing Bill.
4. The housing affordability offered by the SwapRent (SM) program could be offered to all people, either the defaulting homeowners (including some of those who may have made mistakes in the past about their personal income data in order to obtain the troubling mortgages they have now) or anyone else who may like to use the fair market value subsidy to buy up a foreclosed home with no bells, whistles or any stringent restrictions attached. This will definitely cover a lot more ground than the current Housing Bill could ever do to save our economy. The potential uses and their associated economic benefits of SwapRent (SM) go way beyond the current foreclosure prevention but all these other benefits could all be established and realized in just one single set-up effort.
5. The patent pending SwapRent (SM) approach will allow the federal or local government shared appreciation mortgage providers to recycle the assistance funds. By extracting out the appreciation potential in the form of the SwapRent (SM) contracts, selling them in a secondary market to other investors and getting the capital back to benefit other potential homeowners in need, the governments would not have to use more taxpayers’ money as locked up fund to punt for potential future real estate market recovery. This new economic function of capital regeneration through a tradable secondary market that a SwapRent (SM) transaction provides to the shared appreciation component is similar to what securitization used to provide to the underlying mortgages per se in the past.
There are a lot more advantages but they are too numerous to list. Please feel free to contact us for further information. All in all it is a great thing now that the masses have to start learning and accept the generic shared appreciation concept as a viable way for housing finance going forward in the US. In short, the true housing affordability could be realized when potential homeowners learn not to bite more than they could chew. If the homeowners do not have the income ability then either they don’t buy at all or they should agree to share the potential property value gain with other people in order to live in a bigger home and to enjoy at least a part of the potential appreciation.
We have in the past two years spent tremendous amount of time to educate people about the simple shared appreciation home equity finance concept. Now that the shared appreciation genie is taken out of the bottle through the introduction of the new Housing Bill, we may no longer have to sell the simple shared appreciation concept anymore, but rather to focus on selling why the SwapRent (SM) approach is better than the conventional non-property derivatives based shared appreciation mortgages which again the Housing Bill solution belongs to. To draw another analogy again, it is like we no longer have to sell to people why mobile phones are better than fixed line corded phones, but rather only to spend time on explaining why an iPod may be better than a bulky platform shoe Motorola cell phone. Let’s hope it will be all downhill from here …
We currently offer the SwapRent (SM) Project as a licensing consultancy project to help city and county governments set up their own private label brand of homeowners assistance program since obviously the Housing Bill will not be sufficient to rescue the deteriorating city or county government finances as a result of the property value erosion. The longer they wait, continue to put the false hope on a miracle federal or state help and use it as an excuse to take no initiatives themselves to fix the local economic problems, the closer they may get to follow the City of Vallejo’s foot step. It is not private sector business’ responsibility to fix the local economy either. The free market capital will only flow to those communities that the free market investors think that the local governments do care and indeed are committed to do something about the serious problems in order to maintain and promote the local economic prosperity.
Our subsidiary REIDeX, Inc. helps the municipalities with all the transactional logistics and operational support as well as finding potential matching institutional investors so that no taxpayers’ money will ever be necessary to get their local communities and our nation out of this current mortgage mess. Here is a chance for the local governments to prove they could be better public servants than those federal folks by putting the necessary political will and managerial power behind the SwapRent (SM) plan to create an operational success, set an example for the rest of the nation and turn our national economy around.
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Innovation Trio: SwapRent, FARJHO & TARELV 