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 – http://www.SwapRent.com

About the Author Ralph Y. Liu

Ralph Y. Liu is the Founder and Chairman of California-based Advanced e-Financial Technologies, Inc. (AeFT).

AeFT is currently a research and consultancy firm. It has been one of the major providers for financial innovations in the new real estate and property derivatives field since its inception in 2001. AeFT’s earlier seminal REIFO venture attempt in early 2002 on REIFO Exchange was regarded as the first on-line real estate futures and options exchange in the global financial derivatives industry. Here below are some published references on the original project for establishing and clarifying patent prior art purposes:

  • Futures and Options Week, “First Online Exchange for Real Estate Futures”, Vol. 7, Number 36, September 16th, 2002  (Page 3).
  • Risk Magazine, “Building A Hedge for Housing”, Feature, December 1st, 2002.
  • John Rubino’s book, “How to Profit from the Coming Real Estate Bust – Money-Making Strategies for the End of the Housing Bubble”; Published by Rodale, 2003; ISBN 1579548709, 9781579548704; pages 226-227.
  • Risk Magazine again, “Universal Hedging”, Feature by Nick Sawyer, March 6th, 2003.
  • “Contract Market Viability” by Gordon C. Rausser and Henry L. Bryant, April 2004.
  • Comments on Session “Aggregation Issues” by Professor Robert J. Shiller, BIS Paper No. 21, Part 26, Page 338, April 2005.

The REIFO project fostered the subsequent interests and efforts by many other industry participants to start exploring in this emerging field. The housing-led financial crisis that started to appear in early 2007 has made its earlier extensive research and development work in the preceding years coincidentally very relevant and timely.

In early 2006, AeFT pioneered the development of real estate index derivatives into more user friendly consumer financial products. Notable examples are its patent pending SwapRent (SM) instruments to facilitate the newly created “economic renting, owning and switching” concept as well as the related new generation of mortgage products such as HELM, PELM and FVCM for property owners and investors in countries located in many parts of the world.

Upon introducing this radically new simplifying and unifying consumer “economic renting/owning” or “economic own-rent switching” concept, Ralph has been able to provide the similar economic benefits, traditionally offered only by complicated financial derivatives in the past, to homeowners and investors without having to resort to those traditional complex derivative instruments, since most consumers are already very familiar with the many differences between the financial transactions of owning and renting a real estate property.

Through its REIDeX subsidiary (a prototype is currently located at http://www.REIDeX.com for illustration and public education purposes), it provides a marketplace for the trading and settlement support of the three types of SwapRent (SM) contracts (Generic, AG and DP) and other property index-linked derivatives on both residential and commercial properties.

Due to the fact that the SwapRent (SM) system and its embedded mortgage product HELM were originally invented based on an efficient flexible and reversible shared economic ownership concept that is coincidentally ideologically consistent with the equity based profit sharing principles of Islamic finance, Ralph has devoted much of his time in the entire year of 2009 researching Islamic banking practices in order to develop a new generation of Islamic mortgage products based on a Sharia compliant version of SwapRent (SM) and HELM to introduce his new “economic owning and renting” concepts to the 1.66 billion of global Muslim population.

The existing so called “Islamic mortgage” seems to be almost a direct mirror image copy of the Western mortgages, but with an alternative name for the interest payments. Home owners and borrowers could still get foreclosed and burdened by the debt obligations. The newly invented SwapRent (SM) embedded mortgages products such as HELM and FARM were created to fix those exact problems by providing a genuine equity based home ownership. This exciting new type of housing finance products that was created under these Islamic finance principles was explained in the following blog post FARM (Flexible And Reversible Musharakah/Mortgage).

Subsequently, it has since evolved into a new home ownership structure called FARJHO (Flexible And Reversible Joint Home Ownership) which ends up providing similar ultimate economic benefits universally to both Muslim and Western consumers alike. For the first time people could finally own, occupy and use a residential property not only without Riba, the burdening of people through the borrowing or lending of money, but also get to hold on to the property under unforeseen future adverse economic situations.

The successful implementation of this new universal home ownership structure FARJHO by homeowners could potentially make the term “mortgage foreclosure” or “property repossession” obsolete, when borrowing is only allowed under the FARJHO proposed method, i.e. lending to partial owners only at the member level and not at the property level. Future defaulting members will be able to simply walk away quietly and be replaced without affecting other co-investors and most importantly, without disturbing the home occupiers.

When lesser credit-worthy aspiring home owners have already resorted to this new equity financing method, what is left for the banks to lend to will be much better credit quality home buyers/borrowers. More free market based consumer choices will always be a win-win situation for everybody under the uninhibited free market capitalism.

In the US, the legal entity structure selected back in 2010 to be used to implement the FARJHO concept going forward is the familiar LLC structure in order to corporatize American homes, one home at a time. People ought to know that borrowing should not be the only way to own homes. When this new concept and method take off, it could finally accomplish the goal of creating a liquid equity market for homes just like there have been liquid stock markets for major businesses in many countries since over 300 years ago already.

For current commercial FARJHO offering, please visit http://www.InvestorsAlly.com or for the non-profit operations at http://www.PeoplesAlly.org for low income working families.

Previously Ralph was the Chief Investment Officer and an Executive Vice President of China Everbright (Guang-da) Bank based in Beijing where he introduced the first RMB (CNY) – denominated interest rate swap to the Beijing inter-bank community that started the domestic derivatives industry in China.

Due to the newly created ability to manage the bank’s asset and liability through these new interest rate swaps, he was able to design and launch the first long term fixed rate residential mortgage offered by the bank to the entire homeowners market in China as well as the first fixed rate corporate loans for corporate borrowers in the country. Using fixed interest rates to borrow from commercial banks was finally made possible for the first time for Chinese homeowners and corporate borrowers since the introduction of the free market concepts in the 80’s by a previously central planning society under the Communist government.

Chinese business entities finally got to compete with American, Japanese or European companies on an equal basis at the global stage in terms of managing their own borrowing cost. Global MNCs doing business in China could hence manage their overall interest rate risks in the domestic currency RMB as well.

Due to this newly introduced capability for all the Chinese property mortgage borrowers to use fixed rate mortgages which was introduced, launched by China Everbright (Guang-da) Bank in January, 2006 and subsequently followed by many major commercial banks in China, homeowners in China may get to avoid a similar subprime mortgage lending fiasco by relying on transient low variable rates that happened in the US home mortgage markets.

Although the RMB lending rates have not moved sharply higher since then and the Chinese property market is continuing to be pushed higher by short term variable borrowing rates, the low interest rate environment may come to an end sooner or later and the credit-induced climb of the Chinese property market may subsequently also come to a halt as a result.

With a timely development of the SwapRent (SM) transaction service for homeowners and the SwapRent (SM) embedded HELM and FARM products in a new alternative complementary housing finance system, banks and other financial institutions in the future may easily get to escape the massive mortgage defaults and foreclosures that banks in places like the US, the UK, Ireland and Dubai have encountered in recent years.

Ralph built and ran a successful Singapore-based derivatives trading/risk management consulting and IT systems company in the 90’s called ARMS (Advanced Risk Management Solutions, Pte. Ltd.) which provided services over 26 countries covering the entire emerging markets from Asia, Middle East to Central and Eastern Europe with a 4% global market share. Counted among clients were many major stock exchanges, futures and options exchanges, brokerage companies, banks and other financial institutions including central banks around the regions. ARMS’ teams of financial engineers and traders would typically set up and run OTC derivatives trading desks such as interest rate swaps and FX options through joint ventures with local banks in the region.

Ralph was an innovator, creator as well as a prolific writer, speaker and educator that had helped shape the development of the financial markets in many of the Asian, Middle Eastern, and Central / Eastern European emerging economies in the 90’s. Among many of his earlier academic publications and inventions, the VaR Derivatives and related new theories that he created were of particular interests to the financial enterprise-wide risk management community.

In his earlier years as a prominent derivatives banker in Asia, he was brought to Singapore from New York by UBS while a Vice President in sales, trading and risk management. With the early experiences gained on Wall Street, he successfully created many new innovative treasury businesses based on structured derivatives for the Asian banking community. He then moved on to be the Managing Director and Head of Structured Derivatives for Chase Manhattan Bank based in Hong Kong to run the entire Asian derivatives business with many more financial innovations and substantial business revenue results for the bank.

Ralph acquired his earlier training in financial derivatives and capital markets sales and trading through working at many prestigious Wall Street institutions such as Morgan Stanley, Chemical Bank (JP Morgan Chase now) and Equitable Life Assurance Society (AXA now), all based in New York City.

Ralph received his MBA in 1987 from the Wharton Business School after he completed many other graduate degrees and studies in computer information science and chemical engineering from various top American universities (Penn, Michigan and Rice).

Ralph was born in Taiwan and holds both US and EU citizenships as well as an Australian, Singapore, Hong Kong and China Permanent Residence. He speaks fluent Chinese and understands basic Russian. He lives in Rancho de Liu in Southern California with his wife, children & their Arabian horses.

Here below are partial lists of references:

Press, Magazine and Book Coverage

  • “Swap Specialist Tries Novel Strategy”, Hedge Fund Alert, Harrison Scott Publications Inc., April 14th, 2010 (page 6).
  • “A New Concept Aims to Resolve Problem Loans”, by Bonnie Sinnock, National Mortgage News, March 10th, 2010, Web Version.
  • “SwapRent Aims to Help Resolve Today’s Problem Loans and More”, American Banker, SourcesMedia, Inc., March 9th, 2010.
  • “A new beginning”, Islamic Home Finance, Islamic Business and Finance, Oct 09, Issue 46, CPI Financial, November 2nd, 2009, CPI Financial web link.
  • “Private sector home affordability strategies progress”, Structured Credit Investor, Issue 155, October 7th, 2009.
  • “Game-Changers: New Financial Products and Platforms in Uncharted Territories”, by John Jay, Senior Analyst, Aite Group, April 6th, 2009 (page 4 – 7).
  • “Entrepreneur Liu Sees A Derivative Solution for Homeowners”, Dow Jones Newswires, September 4th, 2007.
  • “Product Proposed to Hedge Against Home Prices”, Inside Mortgage Finance’s Inside B&C Lending, August 24th, 2007.
  • “SwapRent (SM) Plan Matches Struggling Borrowers with Investors” MortgageDaily.com, July 10th, 2007.
  • “Profile: Ralph Liu – Back on the Ranch”, Risk China Magazine (in Chinese), December 2006.
  • “Profile: Ralph Liu – Back on the Ranch”, Asia Risk Magazine, July 2006.
  • “The Chinese Derivatives Market Is Way Too Seductive – An Interview by Cai Jin Magazine in Beijing, March 2006 (in Chinese), Page 1; Page 2; Page 3.
  • “China Takes Limelight”, Derivatives Week, March 20th, 2006.
  • “The man behind the deal”, The Hong Kong Standard, February 14th, 2006.
  • “Rancher Spurs Beijing to Accept Rate Swaps”, Wall Street Journal, February 14th, 2006.
  • “PBOC lists rules for interest rate swaps”, The Standard, February 10th, 2006.
  • “Entrepreneur Sees A Futures Market for Homeowners”, Los Angeles Times, April 20th, 2003.
  • LA Times Article Web Version, April 20th, 2003.
  • “Universal Hedging”, Risk Magazine, Feature by Nick Sawyer, March 6th, 2003, Web-link.
  • “How to Profit from the Coming Real Estate Bust – Money-Making Strategies for the End of Housing Bubble”, John Rubino, Published by Rodale 2003, ISBN 1579548709, 9781579548704, pages 226-227.
  • “Preserving Your Home’s Value”, Business 2.0, February 2003.
  • “Building A Hedge for Housing”, Risk Magazine, Feature, December 1st, 2002, Web-link.
  • “First Online Exchange for Real Estate Futures”, FOW Week (Page 4), September 2002.
  • ASP Vendors Vie for Asian Business, Risk Magazine, October, 2000, Page 1; Page 2.
  • “Malaysian Bank Expands in Derivatives – ARMS Derivatives Trading Project”, Futures and Options Week, June 1997.
  • “Banks Hold the Keys to Future of Malaysian Derivatives”, Asia Times, December 1996.
  • “ARMS and the Risk Man”, Futures and Options World, February 1996.
  • “Derivatives – Safest Tools Around”, Business Monday, Taipei China Post, September 1995.
  • “Dabbling in Derivatives – Sound Money Market Is Essential”, Indonesian Business Weekly, Jakarta, Indonesia, May 1995.
  • “Chase Derivatives Chief Quits Hong Kong for Base in Singapore”, Business Times, September 27th, 1994.
  • “Foreign Banks Preparing for the Launch of RMB Currency Derivatives (in Chinese)”, Hong Kong Economic Times, August 1994.
  • “Derivatives Demand Picking Up in S-E Asia”, Malaysian Business Times, August 1994.
  • “Asians Tune in to New Instruments”, South China Morning Post, August 1994

Published Articles

  • SwapRent (SM) and FARJHO (SM) Presentation File Version 7, “SwapRent (SM) and FARJHO (SM) – New Alternatives for Home Owners and Property Investors”, November 1st, 2010.
  • “SwapRent (SM) as A New Alternative Economic Policy Management Tool for Governments and Central Banks”, August 18th, 2010.
  • “The SwapRent (SM) Transactions for Homeowners, HELM and FARM – A New Alternative Housing Finance System”, Housing Finance International (HFI), the Quarterly Journal of International Union for Housing Finance IUHF), Brussels, December, 2009 ( http://www.housingfinance.org ), Editor’s Introduction.
  • “SwapRent-empowered FARM – An 8-minute Introduction”, Written on August 18th, 2009.
  • “FARM vs. HELM – The Two Opposite Entry Points to Adjust Economic Ownership in Real Estate Property”, Written in July, 2009.
  • “FARM – A New Type of Housing Finance Products without Foreclosure Possibility”, Written in May, 2009.
  • “SwapRent (SM) Embedded HELM vs. SAM and SEM”, Written in May, 2009.
  • SwapRent (SM) Presentation File, Version 6, “SwapRent (SM) – A New Alternative for Property Owners and Investors”, July, 2009.
  • SwapRent (SM) Presentation File, Version 5, “SwapRent (SM) – A New Alternative for Property Owners and Investors”, June, 2009.
  • SwapRent (SM) Presentation File, Version 3b, “SwapRent (SM) – A New Alternative for Property Owners and Investors”, August, 2008.
  • Localizing homeowner credit risk decisions and management – why new SSEs (State Sponsored Enterprises) may be better replacements for the current GSEs in a new national housing finance system, July, 2008.
  • SwapRent (SM) Presentation File, Version 3, “The SwapRent (SM) Project for Municipalities (City and County Governments)”, June, 2008.
  • REIDeX SwapRent (SM) Product Fact Sheet, March, 2008.
  • SwapRent (SM) Presentation File, Version 2, “REIDeX.com – The SwapRent (SM) Marketplace”, A REIDeX, Inc. Presentation File, February, 2008.
  • “USPTO Patent Applications for SwapRent (SM) Transactions, the Related Property Derivatives Embedded Mortgage Products (HELM, FVCM), Structured Investment Assets (PILN, REILD), the OTC Market Place (REIDeX) and the Property Price Index Construction Methodology (SPIM)”, Published by USPTO on 10/18/2007, USPTO Patent Application #: 20070244780 A1.
  • “PCT Patent Applications (WO/2007/111928): Real Estate Derivative Financial Products, Index Design, Trading Methods, and Supporting Computer Systems”, Published by WIPO on October 4th, 2007.
  • “SwapRent (SM) – A New Alternative for Property Owners”, An AeFT Business Product White Paper, Written on March 26, 2006 and Published on October 18th, 2007 (This is the original English version before being translated into the legalese of the Patent Application.)
  • SwapRent (SM) Presentation File, Version 1, “SwapRent (SM) – A New Alternative for Property Owners”, An  AeFT Inc. Presentation File, Written on March 26, 2006 and Published on October 18th, 2007.
  • “VaR and VaR Derivatives”, Capital Markets Strategies, September, 1996.
  • “Pricing VaR Derivatives – A Capital Cost – Based Approach” Financial Products”, April 3rd, 1997.
  • “VaR Derivatives”, Derivatives Week, September 1996.
  • “The Value-at-Risk Revolution”, Finance Asia, May 1996.
  • “A Lesson in Financial Futures Trading”, Asia Time Opinion, April 1996.
  • “The Futures Game”, The Edge, December 1995.
  • The Alchemy of Asian Exotics, Risk Magazine, November 1995.
  • “Building for the Futures”, Risk Management, Finance Asia, 1995.
  • “Managing Market Risks in Derivatives Trading”, The InterData FinanceAsia Handbook, 1995.
  • “When the Standard Advice Fails to Reflect Asian Markets Realities”, Asia Times, 1995.
  • “Currency Options Market – Euromoney Guide to Financial Techniques (in Chinese)”, 1994, Page 67; Page 68; Page 69; Page 70; Page 71; Page 72.

Conferences and Seminars

  • Second International Think Tank on Housing Wealth, “House Prices and Risk”, Melbourne, Australia, Organized by Durham University, Durham, England and RMIT University, Melbourne, Australia, 12-13 February 2009, Draft Conference Agenda.
  • Milken Institute Financial Innovations Lab, “Seminar of Housing Finance – Beyond the Crisis”, Washington DC, Organized by Milken Institute, October 7th, 2008.
  • Harvard Business School Real Estate Symposium 2008, Organized by Harvard Business School, Cambridge, MA, February 9th, 2008.
  • Guest Speaker Series “A Talk on SwapRent (SM)”, Finance Club, Drucker Graduate School of Management, Claremont, CA, Organized by Claremont Graduate University, Claremont, CA, November 6th, 2007.
  • Terrapinn Real Estate Derivatives World Conference, New York City, April, 2007.
  • Terrapinn Property Derivatives World Conference, London, June, 2006.
  • Keynote Speech at ISDA Annual General Meeting in Singapore, March 2006.
  • International Swaps and Derivatives Association (ISDA) 2006 AGM Presentation File on Chinese Financial Markets, Singapore, March 2006.
  • “Backroom Operations in Financial Institutions”, The Asia Business Forum, Singapore, February 2000.
  • “Advanced Asset and Liability Management”, ICM, Tokyo, Japan, November 1999.
  • ARMS Global Financial Series 1999, The Value at Risk Approach to Bank-wide Risk Management, Page 1; Page 2; Page 3; Page 4.
  • “CEO Breakfast Talk for the Insurance Industry”, Malaysian Monetary Exchange (MME), Kuala Lumpur, July 1998.
  • “Asian Bonds ’98”, International Business Forum, Singapore, February 1998.
  • “Key Uses of Hedging Instruments to Protect Your Investment”, International Business Forum, Kuala Lumpur, February 1998.
  • ARMS Asian Financial Series 1997, Managing the Risks in Trading Derivatives, Page 1; Page 2; Page 3; Page 4.
  • ARMS Asian Financial Series 1997, FX Options Trading and Their Structured Applications, Page 1; Page 2; Page 4.
  • “Value at Risk”, ICM, Tokyo, Japan, September 1997.
  • “Credit Risk of Derivatives”, AIC Conferences, Singapore, September 1997.
  • “Understanding Stock Warrants”, Taiwan Stock Exchange, July 1997.
  • “Risk Asia Congress 97”, AIC Conferences, Singapore, June 1997.
  • “Internal Audit 1997”, The Asian Business Forum, Singapore, June 1997.
  • “Credit Derivatives Summit”, Tokyo, Japan, June 1997.
  • Asian Credit Derivatives Summit 1997, AIC Conferences, Hong Kong, May 1997.
  • “Backroom Operations in Financial Institutions”, The Asia Business Forum, Singapore, May 1997.
  • “Asian Securities and Investment Automation Congress – Exchange Tech”, AIC Conferences, Kuala Lumpur, Malaysia, April 1997.
  • “Derivatives on Exotic Currencies”, The Asia Business Forum, Singapore, March 1997.
  • “The 6th International Financial Markets Seminar, State Administration of Foreign Exchange (SAFE), Shenzen, China, January 1997.
  • “Trends in Risk Management Technology for Financial Institutions – VaR”, AFMA TechnoFuture96, Sydney, Australia, December 1996.
  • “Currency Derivatives for Traders and Investors – FOW Asia Pacific Derivatives Exhibition”, Singapore, November 1996.
  • “FX Options Trading and Their Structured Applications”, Reuters, Seoul, Korea, September 1996.
  • “The 12th Asia Pacific Petroleum Conference (APPEC)”, Singapore, September 1996.
  • “Internal Audit in Banking”. IIR, Singapore, September 1996.
  • “Re-Engineering the Banks”, AIC Conferences, Singapore, August 1996.
  • ARMS Asian Financial Series 1996, Value at Risk and Internal Risk Control.
  • “The ’96 Asia Pacific Fund Management Conference”, Strategic Forum Expertise, May 1996.
  • “Fund Management in Malaysia”, IBC Technical Services, Kuala Lumpur, April 1996.
  • “Fund Management in the Philippines”, Institute for International Research, Makati City, Philippines, March 1996.
  • “Fund Management Conference”, AIC Conferences, Jakarta, Indonesia, March 1996.
  • “The Indonesian Fixed Income Conference”, AIC Conferences, Jakarta, Indonesia, January 1996.
  • “Currency Derivatives for Traders and Investors”, FOW Events, Singapore, October 1995.
  • “A Seminar on Understanding the Stock Options and Index Futures”, Kuala Lumpur, Malaysia, October 1995.
  • “Uses and Advantages of Stock Index Futures for Stock Investors, Kuala Lumpur, Malaysia, October 1995.
  • “Taiwan Banking and Finance Conference”, AIC Conferences, Taipei, Taiwan, August 1995.
  • “FX Options Trading and Their Structured Applications (in Chinese)”, Reuters, Taipei, Taiwan, July 1995.
  • “The Risk and Danger of Derivatives”, Asia Law and Practice Seminars, Hong Kong and Singapore, June and July 1995
  • “Derivatives for End-Users”, AIC Conferences, Singapore, June 1995.
  • “Bond Analytics and Fixed Income Derivatives”, Asia Business Forum, Emerging Markets in Asia, Singapore, May 1995.
  • IBF Managing Bond Portfolios – Bond Analytics and Fixed Income Derivatives, Singapore, May 1995.
  • IBF Managing the Risks in Trading Derivatives, Singapore, May 1995.
  • “FX Options Trading and Their Structured Applications, Reuters, Singapore, April 1995.
  • “Thai Derivatives Conference”, AIC Conferences, Bangkok, Thailand, November 1994.

Sample Awards, Rankings and Event Photos

  • Signing Ceremony Photo of the First CNY (RMB) – denominated Interest Rate Swap in China, January 2006.
  • “Treasury Vendor Battle”, Global Finance Magazine, May 1999″ALM Systems Ranking”, Meridien Research, February, 1999.
  • “Most Popular Finance Web Site”, FinanceWise Ranking, October 1998.
  • ARMS’ ATMS Awarded Innovation Development Scheme National Science and Technology Board, Government of Singapore; Technopreneurship, June 1998.
  • ATMS Brochure.
  • Chase FX Options Seminar Photo, Penang, Malaysia, August 1994.

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