The SwapRent (SM) program could be a very simple helpful addition to the current TARP bailout plan passed and signed on Friday, October 3rd. The government could allocate part of the fund as a reserve to offer very generous monthly subsidies for both distressed homeowners and normal citizens across the country. Every homeowner will be eligible on a voluntary participation basis. Being generous can ensure more active participation. Homeowners who receive the monthly subsidies to either avoid foreclosures or to use it for any necessary household consumption to boost our national economy will in turn agree to give up part of the future shared appreciation with the government (a similar feature to what is already in the current ineffective Housing Bill which came into effect on October 1st). Therefore this plan will also eliminate the need to have another separate fiscal stimulus bill to boost the economy.
The federal government would in effect simply act as the initial “economic landlord” by providing monthly subsidies to distressed homeowners to keep those homeowners in their homes and avoid foreclosures. The vast majority of all the mortgage securities will in turn recover in value immediately in anticipation of such a plan by the government. Hence, the banking credit crunch would ease quickly. We could therefore get to be saved from putting the entire $700 billions at risk. The total up-front amount of reserve required to be allocated to provide the total aggregates of future monthly subsidies in exchange for the long term real estate recovery investments through the SwapRent (SM) transactions will be only a very small portion if it.
The SwapRent (SM) program is simply a quantitative methodology to make it all possible. Government will end up holding these SwapRent (SM) contracts temporarily as the initial seed “economic landlord” investor and they could turn around at any appropriate time, transfer and sell these SwapRent (SM) contracts to any other domestic or foreign investors in a secondary market to bring fresh new free market money into our national economy. The involvement of taxpayer’s money will be freed up much sooner. The government’s role is only a temporary middleman to offer the investor confidence required during this crisis time.
For more technical explanations, please kindly review the FAQ #11 on the http://www.SwapRent.com home page. Basically by extracting out the purified real estate exposures through SwapRent transactions and removing the incentives to default by borrowers the value of the MBS, CDOs and CDS could recover in a major way. This could potentially enable Treasury Department to make a lot of money for the taxpayers should the SwapRent (SM) program indeed be implemented in time.
If the government could clearly communicate this credible plan on how to recover the value and trading liquidity of the depressed mortgage securities, CDOs and CDS through solving the root mortgage default/foreclosure problems first, it would certainly help create the necessary investor’s and the public’s confidence and support in a bailout plan to restore the credit creation process of our banking system. Financial markets will immediately respond accordingly. If certain really sick banks need to borrow money for the short term from the Fed or to be assisted under the current TARP plan to survive they could still do so but with the systematic help on the horizon they would not face short seller pressure any more.
The homeowners get to be assisted first and foremost. The taxpayer’s money gets to be treated as a temporary equitable property equity investment which can then be easily passed on to other free market investors. The total amount of money at risk is minimized. No Wall Street executive’s compensation issues will need to be addressed since this plan does not favor any particular group. Everything is transparent and could be easily supervised and monitored. It seems to satisfy all the demanded criteria and our free enterprise capitalism system will get to remain untarnished.
The free market approach in this SwapRent (SM) program means anyone who needs assistance or optionally elects to receive monthly income now will simply have to give up a certain part of future appreciation potential in the future with contact values determined in a transparent marketplace. The more free willing participation by homeowners and profit driven new investors, whether they really need assistance or not, the less foreclosures, the more new purchases of homes there will be and the sooner the property market will be stabilized and heading for a upside recovery. That is simply how a free market would work. The government’s seed fund will act as the catalyst to get this wealth creation process started again.
Since the $60 billion slated for the second stimulus plan is already prepared for as a give-away, homeowners in each city should be able to negotiate a much better SwapRent (SM) rate (hence a larger monthly subsidy now for a smaller shared appreciation in the future). It’ll be much better than throwing this $60 billion away without asking anything back for the taxpayers. So this could be a very popular and wholesome plan for the nation and it will fix all the fundamental and derivative problems for our economy.
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Innovation Trio: SwapRent, FARJHO & TARELV 