As a refresher introduction to SwapRent, here below is a short description of SwapRent by looking at the economic benefits of SwapRent from a current renter’s perspective. It may have more relevance for housing agencies at local governments because this description of SwapRent is on its social value in providing housing affordability to low income people in particular. The involvement of the local governments in implementing the program could ensure that there would not be any opportunity for abuse of this yet to be implemented new innovative system by private sector firms that may cause systemic risks.
As we all know that similar abuses in conventional mortgage underwriting in the past had primarily led to the housing-led financial crisis in the US. So the innovations are really more than just some new economic methodologies or tools but also the newer thinking on who should be better involved in our new housing finance system for our economic societies in the future. In addition, the local governments could treat this new program as a major revenue source for better managing the governments’ own finances (see the business model for middlemen on slide #11 of the presentation file at http://www.SwapRent.com ).
SwapRent is the realization of the newly invented consumer financial concept of “economic renting” while keeping the legal ownership for homeowners. The answer to the perennial question of to buy or to rent varies as time evolves. Sometimes the rental rate (say renting at 2% per annum) is higher and more expensive than owning (say 1% through artificial teaser rates). Other times the reverse is true (say 5% mortgage rates when teaser rates expire). It would be nice if property owners can have a choice to separate the legal ownership from the economic interests and hence the financial risks and rewards of owning a property. The three SwapRent transactions (Generic, AG and DP) were created to facilitate these new concepts.
In the current housing-led economic crisis context, the benefits are two folds. Present low income apartment renters could move up to live in bigger, better houses and enjoy higher quality neighborhoods through the true legal ownership of the houses they live in if they agree to share the appreciation with other investors, as their economic landlords, the future appreciation of the houses that they live in. If they do not take this voluntary offer and decide to stay apartment renters they will not have this better living comfort and quality neighborhood and they will have no share of the future appreciation of any apartments or houses whatsoever as an investment.
Therefore, they could decide to participate in a fair share of future appreciation of the house they select to live in, purely based on their economic monthly income capability, without over-stretched borrowing to enjoy these investment opportunities. Or they could simply decide to keep that extra monthly income investment capability on something else, other than the potential property value appreciation as the housing value appreciation may or may not happen during their life time. The property value may actually decline, as many have been convinced by now.
Through the new “economic renting” concept facilitated by SwapRent transactions, separation of legal ownership and economic ownership could be realized so that traditional low income renters could move up to enjoy 100% comfort of legal ownership of better living environment and either partially or fully (25%, 50%, 75% or 100% etc.) participate future appreciation of an economic ownership solely based on their un-leveraged or reasonably leveraged economic monthly income ability.
This realized partial or fractional economic ownership structure could reduce the present and the future abuse of undue leveraging that often lead to defaults/foreclosures and an eventual collapse of leverage-induced asset bubbles. Meanwhile, low income families could continuously enjoy the comfort of the homes of their choice, irrespective what happens in the financial value of the properties they live in. Again, for more info please visit our research web site at http://www.SwapRent.com .
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Innovation Trio: SwapRent, FARJHO & TARELV 