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

1028 2011 Don’t let the 1% left wing opportunists ruin the good cause of the Occupy WS protesters supported by us 99% Main Street capitalists

One thing that has been very hard for many people to figure out is that what the Occupy Wall Street protesters want. The answer could be very simple as nobody really knows what they want and the reason why nobody really knows what they want is that nobody really knows who could be the legitimate voice to represent the entire OWS protesters. You would get a very different answer every time you bump into one of them.

Squeaky wheels either get some oil or they get ear plug treatments. Without knowing exactly where the squeaky sound comes from, it seems most people just put on their ear plugs. I wonder why this could be an advantage for the OWS protestors that some of the OWS protestors have been trying to tout.

Without some specific goals and/or executable methods, the movement could potentially render itself to the exploitation by the extreme opportunists for a short cut ideological change. Somebody may have to come up with a way to organize them soon in order to rid the movement of these potential harmful abuses by the destructive extremists. Otherwise squeaky wheels may soon become flat tires that could paralyze our country’s economy.

Other economic pundits have predicted that this Occupy Wall Street movement might run out of steam before it gets to achieve anything significant. Personally I am not sure about it as most likely these people who made those comments did so right after they returned back from a shopping trip or from a business lunch in an expensive restaurant. While they got their living necessity fulfilled on schedule, the protestors’ situation has not change and would not change in the foreseeable future. It does not seem that the protestors would stop until they get what they need, let alone what they want, when they figure out what it is later. That sounds like a perfect hot bed for the left wing extremists.

The OWS protestors could have started out with a good cause to fight against the inequality from the abuses and abusers in our capitalistic society but if nothing drastic is done to fix the incompetent government leadership in DC and the crony establishments on Wall Street soon to correct the situations, something bad to our country would very likely evolve from here.

What PeoplesAlly Foundation’s efforts aim for is trying to provide the disadvantaged working class people in our capitalistic economic society some additional free market based choices specifically created for them to stand up and unite to fix the faulty and abused system before they get to resort to toggling between the conventional ideological switches.

There could indeed be many other new free market based alternatives brought about from new innovations such as the new equity sharing based home ownership structure of FARJHO, the new peer-to-peer cash flow sharing based housing finance system of SwapRent and the new foreign exchange rate pegging system of TARELV which could bring the economic and political power from the crony hands of Wall Street back to the common people on Main Street. Innovations on our economic policy management systems that is, not the conventional technological gadget inventions that people would normally associate the word “innovation” with.

With these new innovations on economic systems and policy management tools, disadvantaged working class people could finally get to try some new free market alternatives designed for them for the first time in order to fight for and gain equality against the privileged minorities on Wall Street and DC rather than simply giving up on capitalism and resorting to doing the futile historical toggling between capitalism and socialism/communism again.

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, Occupy Wall Street, PeoplesAlly, SwapRent, TARELV, , , , , , , , , , , , , ,

1003 2011 Let FARJHO and SwapRent bring housing finance from the sleight-of-hands on Wall Street to the common people on Main Street – Food for thoughts for the Occupy Wall Street protesters

The Occupy Wall Street protesters’ movement seems to be gaining steam and momentum but what do they want to accomplish?

How about telling Wall Street to stop meddling with our housing finances? Furthermore, the angry protesters that occupied Wall Street seemed to be only able to focus of what have been stolen but they are definitely out of touch on what is about to be stolen again by the very same thieves while they are risking their lives physically protesting to on Wall Street.

First, the best economic solutions and/or new economic systems could be totally ruined if left in the wrong hands again. We need more people’s active participation and the support of PeoplesAlly Foundation to further our causes of FARJHO and SwapRent for the benefits of the people on Main Street. Let’s work together to keep Wall Street big banks’ dirty fingers off these new democratic solutions.

Second, we will need to prevent another financial heist like those happened in 2008 from happening again. In Russia and other third world countries the oligarchs have to make some special efforts to steal the national assets behind closed doors. It would actually be a lot of hard work for them and perhaps a few investigative journalists would have to be poisoned or murdered along the way. Here in America, they do it right in the open by spinning the media with wrong information and manipulating the public sentiment with political influence. They did it times and again right in front of our eyes and there was not a thing that we, the folks on Main Street could do about it. The case in point is FHFA’s current plan to sell the REOs (foreclosed homes) that they own to privileged private sector firms.

The distrust of the federal government’s housing plans is not unwarranted. Remember when the financial crisis first emerged in 2008 and the federal government came up with their first solution that left many of us flabbergasted? While people are losing homes and jobs left and right everywhere, the first thing they did was to come up with a plan to use tax payer’s money to give more than one thousand dollars to the mortgage servicing firms owned by their crony friends for each of the loan mods that they worked on? (Goldman Sachs used to own a major mortgage servicing firm Litton Loan Servicing and only sold it in June this year after many robo-signing scandals.)

You may also have seen how “housing experts” or securities analysts from the investment banks such as Morgan Stanley etc. keep spinning the story on TV and in the press media that the federal government has no experience in running the renting business as the sole reason why GSEs/FHA should sell their REOs to the private sector firms in bulk at discounted prices. It would be another big feast, if not steal, for their crony friends in Washington DC and on Wall Street again while being empowered by the almost zero cost of fund to build up their war chest, thanks to Bernanke and the Federal Reserve Board. It is like hitting another Super Jackpot again!

Let’s hope the cronies would not get it their way to buy in bulk at deep discount our national assets owned by the GSEs/FHA again. If they get it their way, they would become the new serfdom landlords to millions of working class people on Main Street. It will turn America into an oligarch state without a middle class. Can you imagine United States of America is about to become a nation of renters to a few handful of oligarchs!

The availability of the information of FARJHO and the services to the GSEs/FHA may have a chance to stop these pending thefts if more information is made public and understood properly by people on Main Street on what kind of financial heist is about to happen all over again.

Don’t wait to protest after it has happened again. Protest to stop it from happening at all!

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, PeoplesAlly, REIDeX, SwapRent, , , , , , , , , , , , , , , , , , , ,

0910 2011 Our response to FHFA’s RFI – FARJHO and SwapRent from PeoplesAlly Foundation and InvestorsAlly, Inc. – A letter to the Fed, the Administration, GSEs, HUD, SEC, CFTC, other Agencies and the State Governments

Here below is a recent update letter to many of my academic friends who possess well established expertise in economics, economic history, finance, derivatives, laws, mathematics, housing, housing finance, urban planning, real estate, business studies, public policy and political science in various leading universities around the US and in selected foreign countries. I thank them for the various feedbacks and support through the years.

Transparency in our federal government’s policy making process is always a good thing for our country and for our democratic society. As one public figure recently said, the best way to keep a secret is to do the right thing.

============
Dear AcademicAlly,

How are you?

Here below is the latest development regarding our efforts to help solve our nation’s housing-led economic crisis. As you know I have been in touch with many of the government folks regarding FARJHO and SwapRent on an academic basis within the past few years since 2007. Please feel free to let me know if you would like review some of their earlier feedbacks. Yours and your colleagues’ academic input and critiques on our proposal would be highly appreciated.

We have provided our FARJHO and SwapRent solutions to the FHFA and submitted our response to their August 10th RFI project (see below) from both PeoplesAlly Foundation ( http://www.PeoplesAlly.org ) and InvestorsAlly, Inc. ( http://www.InvestorsAlly.com ). The non-profit will provide the educational services and the counseling of home owners which we have spent tremendous time to build and to create a political voice within the past year. InvestorsAlly will focus on providing the technology platform for the FARJHO matching services at http://www.farjho.com as what it was always set up to do since the inception.

For a thorough understanding of the new FARJHO methodology to own homes one home at a time, here is the link to my draft paper on FARJHO ( http://www.box.net/shared/yfhkjbqre4idf1kgrtc4 ) which is to be published by the housing finance journal HFI in their upcoming September or December issue as a sequel to my earlier article on SwapRent ( http://www.box.net/shared/v24qtqip4hlgff5l1646 ) published in the December 2009 issue.

Please note again the link to a copy of our response is at http://www.box.net/shared/hpfqqajd1aremco716lr . There could be many area that you and your colleagues could help improve this project. Your active participation to further fine tune our proposed methods, the deployment channels and delivery procedures would be very welcome. It is all for saving our country’s economic future. Let’s work as a team.

Let’s hope that these unwise policy decisions made or to be made by our federal government, intentionally or not, will not turn our country into an oligarch state without a middle class soon. Your active participation may help change the course of history. Please feel free to let me know if you have any questions. Thanks.

===============
Date: Sat, 10 Sep 2011 11:54:07 -0700
To: Email addresses suppressed
From: Ralph Liu <ralph.liu@investorsally.com>
Subject: Our response to FHFA’s RFI – FARJHO and SwapRent from PeoplesAlly Foundation and InvestorsAlly, Inc.

Dear Federal Reserve Board Chairman, Regional Presidents, Administration, Treasury, FDIC, HUD, GSEs, SEC, CFTC, Congressional Staff and Other Relevant Agency Officials,

cc. State Governments, State Housing Authorities

How are you? I would like to give you guys an update on the latest developments of our FARJHO and SwapRent efforts.

On August 10th FHFA, the regulator of GSEs issued a RFI asking for ideas from the public on how to deal with their REOs portfolios. Here is the link to their original request. http://www.fhfa.gov/webfiles/22366/RFIFinal081011.pdfrding

We have submitted our public response to FHFA from PeoplesAlly Foundation and InvestorsAlly, Inc. in early September. Here is the link to a copy of our response for your kind review and comments. http://www.box.net/shared/hpfqqajd1aremco716lr

The advantages of our FARJHO based proposal are:

1. It eliminates the need to let privileged private parties have access to and engage in quick short term buy-low-sell-high flipping activities at preferential bulk sale discount prices to profit from the potential privatization of our national assets owned by the GSEs and FHA.

2. It helps avoid the federal government, the elite private equity firms in DC or hedge funds on Wall Street from becoming new long term serfdom landlords to low income working families on Main Street by allowing renters to become partial co-owners of the home properties through FARJHO LLCs.

3. Potential wealth created from a future recovery of the US housing market will be able to be channelled through FARJHO back to small town investors, mom’n’pop’s self-directed IRAs, state, county and local pension funds, church groups, non-profit endowments etc. on Main Street to fix the local government’s pension liabilities and budget deficits by investing on a more level playing field with other elite institutional investors on Wall Street who already have exclusive access to the use of leveraged low cost of funds as a result of the Fed’s loose monetary policies to profit from the potential price appreciation.

4. Through the new Borrow-Pool-Buy (BPB) member level borrowing concept that replaces the old Pool-Borrow-Buy (PBB) property level financing practice in other conventional equity sharing schemes, future foreclosure possibilities could be totally eliminated once and for all in this new FARJHO home ownership structure.

In addition, I would like to take the opportunity to invite your attention again to the applications of SwapRent as a new economic policy management tool that goes beyond its initial objective of creating housing affordability. A successful implementation could provide the governments with a new way of economic stimulus method similar to how governments have been managing the countries’ economic activities by adjusting the interest rate levels at the moment.

Since 30’s and 40’s Keynesian economy and 50’s and 60’s Monetarism could not function well in a technologically very different modern world in 2011 where hot money flows freely and instantaneously across borders, a new economic policy management tool has to be created so that the stimulus money could have “the stickiness effect” and stay in local communities to have the desired economic stimulus objectives of creating local jobs for the domestic economy. That is exactly what a new SwapRent market could deliver.

For an introductory description of how this could work please kindly review Chapter 6 of the SwapRent article published at the December 2009 issue of the Journal of Housing Finance International published by International Union of Housing Finance (IUHF) at http://www.box.net/shared/v24qtqip4hlgff5l1646 . The following two blog posts also explain how this could be done in local communities through championing by local politicians on a free market basis without relying on any handouts from the federal government.

http://peoplesally.wordpress.com/2011/02/19/02202011-it-is-not-keynesian-it-is-not-monetarist-perhaps-we-could-call-it-swaprentism-any-better-suggestions/

http://peoplesally.wordpress.com/2011/08/02/0802-2011-implementation-strategies-of-farjho-and-swaprent-good-economic-stimulus-public-policy-or-cornering-the-real-estate-market-by-investors-for-profits/

All information contained in our proposal to FHFA are non-confidential in nature and therefore are free for public distribution. Please feel free to share with us your thoughts and comments. Thanks.

Ralph Y. Liu
Managing Director
PeoplesAlly Foundation
23 Corporate Plaza Drive, Suite 133
Newport Beach, CA 92660
Tel: 1-888-456-8881 x 888
Fax: 1-888-315-3831
Direct: 1-949-371-9139
peoplesally@gmail.com
http://www.PeoplesAlly.org
http://www.twitter.com/SwapRent
http://SwapRent.com
http://www.linkedin.com/in/ralphyliu

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Federal Government, Housing, InvestorsAlly, PeoplesAlly, REIDeX, Section 8, SwapRent, , , , , , , , , , , , , , , , , , , , , , ,

0910 2011 Weekly Round-Ups from Various Social Networking Sites on FARJHO, Sec 8’ed FARJHO and SwapRent

There have been increasingly more feedbacks and comments which has made it more and more difficult to keep track them all and summarize in the blog. Here are a few representative recent posts.

========== On not to let Wall Street and Washington DC elites turn our country into an oligarch state without a middle class:
Comments:
Great ideas! You are right, qualified and educated investors are needed. There’s a lot out there who can produce the 20% as the occupying partner because they can not get a straight conventional loan because of foreclosures and short sales. I will follow your company and learn more about it.  You are brilliant!

Response:
Thanks. We need people who could share the visions with us to actively participate and make this a reality together, especially from the grassroots level in local communities on Main Street without the reliance on the federal government or big banks on Wall Street.

It is all for the good cause at http://www.PeoplesAlly.org and we’ll need to make it happen as Realtors ourselves together. Small investors could pool together their funds through IRA or other savings so that they could get to enjoy the wealth from a potential recovery of the housing market. The wealth will then be kept in Main Street America.

We can’t simply let our federal government sell their REOs owned by GSEs/FHA to a few Wall Street players to turn Main Street to become a whole bunch of renters to a few privileged landlord oligarchs in our country going forward.

Realtors’ work will then mostly be reduced to leasing jobs if that is the case. Let FARJHO help the small investors on Main Street to keep a piece of the capitalist’s pie for themselves and Realtors continue to do their main jobs to sell homes.

============ On the need to divert free market capital to the working poor:
Comments: …. Using tax payers money for the Section 8 occupier does not seem like such a good deal for the tax payers …..

Response:
…. Sec 8’ed FARJHO program does not use any of the tax payer’s money itself, it only makes the tax payer’s money already committed by your local congressmen work more efficient through turning renters to become partial home owners in order to improve local neighborhood stability and enhance social harmony …..

…. We are simply trying to educate the investors and let them know the credit risk could be considered lower than putting their money in other regular FARJHO projects so that there will be free market capital flowing into the low income housing sector to have the working class enjoy their fair shares of the economic benefits of capitalism.

In fact, after running the test market program for over a year at our commercial side at http://www.InvestorsAlly.com we have had trouble to even get investors’ interest move out of the premier coastal markets in Orange County to the less prestigious Inland Empire area.

Money seems to love the glitz, glamor and bling, bling. That seems to be how Bernanke and his cohorts at the Federal Reserve strongly believe in to make the rich even richer by flooding them with money at almost no cost to them. They are indeed similar to the elephant seals that I referred to in one of my related old blog post below:

http://peoplesally.wordpress.com/2010/11/02/11022010-from-elephant-seals-colonies-to-emperor-penguins-rookeries-a-few-thoughts-on-farjho-matching-process/

I hope you could understand that while we could do just fine to let the free market capital go chase the bling bling, our social conscience has directed us to set up a non-profit and try to convince the investors that there could be money to be made there with the low income working poor as well! That is the mission of PeoplesAlly Foundation.

The fact is when money flows into a certain area, the property appreciation and economic prosperity would become a self-fulfilling prophecy. On that concept, please see my blog post on “cornering the market or good economic stimulus policy”. Thanks.

=========== On how Keynesian economy and Monetarism no longer work properly in a technologically very different modern world
Comments:
Hi Ralph, I discussed at our last financial crisis 2009 with Representatives of our National Bank. I’am sorry, but they are not aware that their old Instruments don’t work any more. One fact is, that global capital reacts too fast to the real economy. Financial markets became independent of the real markets. A second fact is, that technology is not considered. Fast growing companies/products make some markets rapid obsolete. Complete markets die. We have no more stable competition (accounting can be made in India, with much lower costs, therefore employment is destroyed in Germany for example) This leads to critical societies, where riots occur. We need incentives for the finance market, which correlate with real economy. This is, what you are right. Let us work on stable societies.

Response:
Bingo! I am glad to hear that you had spoken out on this concept before. Very few economists seem to have focused on this crucial issue. Old “national economic policy management tools” don’t work in the modern economic societies. The world has become much more integrated in terms of easy capital flow. Hot money has no borders.

The problem is that some of these old school economists in power may continue run our Western economies to the ground by stubbornly sticking to their old knowledge and hiding in their cocoons. Somebody should step up to tell them to either wake up or step aside!

============ On how Sec 8’ed FARJHO works
Comments: Very interesting…I like it and want to hear more…out of curiosity what  would your underwriting standards be for a Section 8 recipient?

Response:
…. Basically the FARJHO part should not become such as issue since the criteria for Sec 8 assistance is based on income levels, not assets, as currently set by the sponsor. Whether the potential JPIs (joint property investors) have any special “underwriting requirements” or personal pet peeves it would be strictly between them and the AHO (aspiring home owner). This is the new peer-to-peer financial services business model to cut out the unnecessary financial middlemen in order to save money for the consumers. Look Ma, no more banks!

Our Internet portal www.FARJHO.com simply provides a matching service like match.com or eHarmoney.com would for marriages. We would simply match the boys and girls together but whether there is spark between them is purely up to them. We would not want to intervene, dictate any terms or force a relationship. If there is no chemistry between them we would simply try to match them with other potential suitors. Whenever there is a match, we will then handhold them to help them walk down the aisle together.

Please feel free to contact us directly if we could do something together. Those who can make it happen in real life in your own community and write a new chapter in the affordable housing history would be the heros to millions of low income working families and be remembered as such for years to come!

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Housing, InvestorsAlly, PeoplesAlly, Section 8, SwapRent, , , , , , ,

Introduction to PeoplesAlly Foundation

PeoplesAlly Foundation was set up in June, 2011 to assist low income working families. Please visit its website at http://www.PeoplesAlly.org.

 

PeoplesAlly Foundation Manifestos:

  • 1. Assisting low income working families on how to increase housing affordability under free market capitalism principles in order to help them obtain either full or partial home ownership through educational and counseling services.
  • 2. Increasing local neighborhood stability and social harmony through social innovations in new home ownership structures as well as new housing finance concepts and methods.
  • 3. Helping maintain free enterprise capitalism through advising working class people on how to avoid exploitation and obtain their unfettered fair share of the economic benefits of capitalism.

Introduction:

PeoplesAlly is a not-for-profit organization headquartered in Southern California that focuses on providing portable housing affordability to low income working families. Its goal is to provide neighborhood smart growth in local communities and municipalities across the country to enhance long term home ownership stability and social harmony.

The unique feature of PeoplesAlly’s services to assist the working class people is that the innovative economic solutions will all be conducted on a pure free enterprise capitalism basis with very little government’s or taxpayer’s involvements other than the government’s role as a game keeper and legal regulations enforcer.

PeoplesAlly attempts to accomplish these objectives through providing consumers with more free market based choices and alternatives. Many of its innovative services are based on the equity sharing and/or cash flow sharing concepts that do not rely on the use of debt. Borrowing should not be the only way to own homes!

PeoplesAlly provides free market based matching services to aspiring homeowners and prospective property investors for a new creative and innovative housing ownership structure called Flexible And Reversible Joint Home Ownership, or FARJHO (SM). In addition, it offers assistance in portable housing affordability for low income working families through a new form of alternative housing finance system based on the SwapRent (SM) related concepts.

The services offered by PeoplesAlly will be provided to qualified low income working families on either reduced fees/commissions or a pro bono basis in order to qualify for a non-profit organization status under State laws.

In the US, homeowners and property investors or a group of property investors hold joint equity ownership in the property of choice through a Limited Liability Company (LLC) legal structure. The homeowner in a FARJHO (SM) pays market level rent to the FARJHO LLC that he co-owns during the course of the joint ownership period. The rent income will then be proportionately distributed to each of the members of the LLC, including the partial homeowner/renter himself/herself.

Throughout the joint ownership period, as a free market choice, tenant/partial homeowners could flexibly and reversibly make SwapRent (SM) transactions with any of the property investors in order to gain further economic home ownership that provides future appreciation potential as well as the associated downside depreciation risks.

Property investors in a FARJHO (SM) could also optionally make SwapRent (SM) transactions, either acting as the “Economic Landlord” investor or “Economic Tenants” at REIDeX.com, which is the secondary marketplace for SwapRent (SM) transactions.

Development History of FARJHO and SwapRent from 2001 to 2011

 

Our Services:

PeoplesAlly helps both aspiring home owners find prospective property investors or groups of property investors based on a predetermined service fee for the matching services.

PeoplesAlly also acts as the syndicate manager to put together the joint equity ownership LLC that would carry the legal title of the interested property. Although not recommended, further prudent leveraging could be used for the LLC to acquire the interested properties at the discretion of the LLC members. This variation may let low income people to qualify for the conventional Shared Appreciation Mortgage or Shared Equity Mortgage applications. This should only be treated as a compromise and not encouraged as a service provided by PeoplesAlly.

PeoplesAlly’s commercial affiliate InvestorsAlly, Inc. acts as a secondary marketplace for the fractional interests in the joint FARJHO LLC ownership by the members whenever legally permitted and practicable under the state laws.

Property investors and the tenant/partial homeowners in a LLC could then have a way to individually liquidate earlier without the ultimate dissolution of the FARJHO LLC as a better alternative when permitted by the state laws.

Our inaugural matching services will officially launch in the State of California soon. Please sign in the guest book and leave your contact details in order to receive future email notifications.

A bi-weekly educational wine and cheese reception is held between 5 pm to 7 pm on every other Thursdays at the foundation’s Newport Beach headquarters.

A separate educational morning seminar on FARJHO (SM) and other alternative purchase options is also conducted every other Thursday mornings at the Newport Center, near Fashion Island Mall.

Please sign up for receiving an invitation to these events.

Filed under: Cash Flow Sharing, Equity Sharing, FARJHO, Housing, InvestorsAlly, PeoplesAlly, SwapRent, , ,

0830 2011 Helping the GSEs and FHA – Some historical background, a few thoughts and the call for union and transparency

The following letter is the touched up version of a recent response addressed to members of Community Development Banking email listserv regarding some of their member’s interests in working with us on FARJHO. The list members include thousands of community development practitioners, credit unions, banks, CDCs, loan funds, trade associations, regulators, academics, governments and other non-profits.

===============
Dear FARJHO Ally,

Thanks for the many responses, inquiries and requests to work together on the FARJHO program. By now I think many of you have already had a reasonable understanding of what FARJHO is as a new form of home ownership structure and what it might be able to do to help solve our country’s current economic problems, perhaps with the further assistance of using the more powerful but more complicated SwapRent contract to prevent home owner foreclosures at a later stage as well.

At the moment we are planning to respond to FHFA’s recent call for assistance on August 10th of ideas from the public regarding how to deal with their massive REO portfolios. I have a few thoughts to share with this group for the transparency purpose and I would like to call for many of you to consider joining hands with us in one united proposal.

Why do we need your help? First, we do not even know whether this latest attempt is a genuine call for ideas or is it simply another facade to prepare the pubic that the well-connected crony forces may come in again to buy the national assets (since they were funded by the taxpayer’s money) in bulk at a deep discounts, like how the many crony Russian oligarchs siphoned the national assets at an unbelievable great bargain price with preferential loans to private hands with a Midas touch after the Soviet Union had collapsed.

The distrust is not unwarranted. Remember when the crisis first emerged in 2008 and the federal government came up with their first solution that left many of us flabbergasted? While people are losing homes and jobs left and right everywhere, the first thing they did was to come up with a plan to use tax payer’s money to give one thousand dollars to the mortgage service firms owned by their crony friends for each of the loan mods that they help close?

Don’t be surprised to hear later on about how many genius businessmen will have made another hero of themselves in those public private partnerships (PPP) or joint ventures with GSEs from buying low and selling high again. We already have plenty of those well-connected “heros” who bought the distressed loan assets at extreme discounts from the federal governments over the past few years. Why do we want to let our inactions to make us sit and watch those crony heros back in actions again?

In the proposal from the consortium that includes PeoplesAlly/InvestorsAlly there is no bulk sale of assets necessary. It would be the most fair and equitable way to channel the potential profits and wealth in a recovery directly back to the local communities on Main Street. The GSEs could simply alter theirs and HUD’s current individual REO selling process by adding the FARJHO way. Therefore the bargain price level could be maintained for all types of FARJHO JPIs (joint property investors) directly, irrespective of whether the potential buyers are Tom, Dick and Harry in your neighborhood, some powerful private equity firms in DC or elite hedge funds on Wall Street. Under free market principles, all private capital could form various funds to co-invest with other small potato individual JPIs to directly participate together to help create FARJHO LLCs to own homes one home at a time.

This way, the individual investors in various local communities on Main Street could at least participate on a level playing field by buying at the original REO price. We need more capitalist solutions designed exactly to serve these independently wealthy individuals, small businessmen and entrepreneurs in local communities who may have access to cash or borrow individually at member level to invest at the same price with the same terms as those Wall Street elite financial institutions would to buy these distressed REO assets. These elite institutions are the one who have the exclusive access to the almost zero cost of fund already, thanks to Bernanke. They should not be dished out another advantage given to them to buy these assets in bulk at the expense of the small town investors.

There is really no need for any other crony hedge funds and private equity firms to get to buy these assets in bulk at deep discounted prices and for them to jack up the prices by doing nothing first and then engage us later to resell the REO homes through the FARJHO structure again. Even worse, the dark forces behind these elite financial institutions may simply blatantly steal the FARJHO related ideas and call it something else with a new name to do it themselves without any respect of legal intellectual property rights or ethics.

Catch me if you can seems to be the modus operandi for some of them because they always bet on the fact that you would not have a deeper pocket for legal fees to fight with them to enforce justice. We have learned that in a hard way within the last 10 years of dealing with some of those unscrupulous and unethical institutions but this is more of a future memoir material and not to be expanded further here.

The FARJHO method is really a very simple concept but you would be surprised why it has not caught on by the government and many other powerful institutions already with our relentless campaigning efforts within the past 6 years. Turning a deaf ear seems to be too simplistic as a reason for it.

As explained in the previous CDB list serve posts, the campaign work to create the awareness and adoption acceptance has been a long journey. Over the past 6 years, I have met up many key Congressional staff, high level Fed officials and the Treasury TARP team in the Treasury Department back in October, 2008 when I was in DC to speak at the Housing Finance Innovation Lab sponsored by the Milken Institute. I have also spoken with both the Democratic and Republican presidential economic teams back then. Many of these historical high level discussions, comments and feedback are available to those who may be interested on a confidential basis.

The dealings with the private sector banks, major mortgage lenders and Wall Street firms started way back in late 2006. After spending our own money flying around the country to their headquarters to make presentations and have our brains picked, torn apart and examined by their top mortgage strategy teams, senior executives and technical staffs from before the crisis even started in 2006 to early 2008, although there was plenty of interest and enthusiasm, nothing concretely resulted from them. Later on it became very clear to us that these major private sector financial institutions have no more credibility to launch anything new in the consumer markets. Try to imagine if some folk from Countrywide knocks on your door trying to sell you a new kind of mortgage or a new home ownership structure? What would you do?

The only positive experience that I had from dealing with them is perhaps the Pasadena based IndyMac Bank at the time. In a statement to its board members and key staffs, its CEO was very excited about the SwapRent idea to fix their own distressed mortgage loan portfolios, He instructed his staff back in 2007 to engage us and not to study to death of our proposal until it is too late like what their staff had done with the new ABX idea before. However, studying to death was exactly what his staff team did. By mid 2008, they were taken over by FDIC.

We are not opposed to working with the big banks as long as they consider themselves the “good banks” and start doing the right things from now on, although there are a few exceptions. I still have direct email correspondences with many CEOs and senior management teams and some of their fully owned private equity arms which are searching for solutions to help the banks to manage their troubled mortgage portfolios. After picking our brains on FARJHO and SwapRent what they have been brooding in their strategy meetings is beyond anybody’s guess at this moment. It is very unlikely that they will share the same egalitarian mission-driven values that many of you in this group pursue.

Since it did not seem to get anywhere with these federal Administration folks, Congressional politicians, big banks and the Wall Street firms in the US, I spent the whole year in 2008 campaigning to and dealing with various state, county and city governments and the housing agencies. Some prominent head of housing finance authority once indicated that they had been working with Goldman Sachs in terms of new ideas or strategies on mortgages and they were therefore “in good hands” as the reason not to pursue a deeper discussion with us. I don’t blame her. Who else wasn’t charmed and enamored by those sexy investment banks before in happier time? The problem now may be that many of them may still have that poisonous infatuation or fatal attraction for doing business with those Wall Street firms for some reason, no matter how dangerous it may mean and turn out to be again for those local residents that they serve.

Our FARJHO/SwapRent work has since evolved into a grassroots effort. Rather than seeking endorsements from the politicians we are getting direct votes from the consumers instead. The movement has finally started picking up momentum in 2011. What we will need now is to find some major organizations to affiliate ourselves with as far as the political force and the political will are concerned in order to provide the economic benefits directly to the American people.

The best economic ideas or new innovations would have no teeth and they are useless if there is no political power or monetary power behind them. Back in 2005 I made a miracle happen by introducing the first Yuan denominated Interest Rate Swap into the Chinese interbank market. As a result of the new ability to lock in the long term cost of funding from a bank’s asset/liability management perspectives, we, China Everbright Bank where I worked as the Chief Investment Officer and an EVP, became the first bank in China to introduce the long term fixed rate mortgages to the entire Chinese home owners market. The RMB IRS market that we had started has since evolved into a trillions of dollar financial market by now. Please see the attached WSJ article ( http://www.box.net/shared/sz6uij0f0q0shkye0l7o ) as one of my previous track records of making new financial innovations and new financial markets happen.

The reason why I was able to do it within a very short time of only a bit over a year to introduce the most capitalistic concept and method of financial derivatives to the biggest communist country in the world at the time was due primarily to the hire-and-fire power that I had at the time. I was among the top executive board level management leaders in the sixth largest bank in China. At the high management level, there wasn’t a lot of endless debate by committee discussions on whether to proceed or not to proceed since I was brought in and reported directly to the president of the bank who is a strong and forceful leader. Any junior managers who did not understand the new project were allowed to go back, study and come back to execute it. If they still could not handle it they would have to step aside to let other more competent persons to make their assigned tasks happen. Nobody is allowed to sit there as a bottleneck and study new ideas at their own pace for their own enjoyment. That was how an unstoppable execution team was formed.

I had never been a political person and financial rewards have never been among the prime motives for doing the things that I do. As described in the WSJ article, that I am builder, not a keeper. I simply enjoy the hard work to blaze the trail. Along the way, the things that I have created have over and over again helped many others advance their political careers and most other people who had lent a hand and participated in the early stage eventually made much more money for themselves while I left and moved on to build other new projects.

As for this current FHFA proposal, we have until September 15th to send it in. I have had some not so pleasant experiences dealing with these federal agencies due to my economic policy-wise dissenting blog posts. I had been excluded from many opportunities to present my academic papers and speak to the housing and community development professionals in the FRB sponsored conference events due to my explicit economic policy dissents with the Fed’s monetary policies. I do not agree with their unwise monetary policies and the various QE programs.

For one thing, why did Bernanke and his cohorts even bother to raise the interest rates repeatedly in such a rush back in 2004/2005 to pop the housing asset bubble built during the Greenspan era to trigger a crisis? Wouldn’t a softer approach in raising rates have been much more prudent? After irresponsibly popping the housing bubble to create the crises without any prudent soft landing plans for the ensuing negative consequences, they went on a money pumping binge to reverse the damages by lowering the rates to the extreme in a panic. Jerking our economy through the unnecessary extreme ups and downs of interest rate manipulations seems to be the only things they thought they knew how to do under the disguise of an overly touted Milton Friedman style of Monetary Policy. Looking at the net effects since Bernanke took over in 2005 (a FRB member since 2002), do you really still think that they knew what they were doing?

The way they are trying to reflate the stocks, bonds and commodity asset bubbles now at a speed that would make Greenspan’s loose monetary policies considered a child play. All these new Bernanke led loose monetary policies were done at the expense of extreme negative consequences of an accelerated and unprecedented polarization of the economic wealth redistribution in America with the rich getting richer and the poor getting flat broke. Crisis is indeed too precious a thing to waste for many of those profiteering cronies who took advantage of these situations.

I think these incompetent policy makers owe our country a big apology.

I do not subscribe to Krugman’s simplistic throwing good money at the bad trying to hope for something to stick kind of Keynesian solutions either. If simply telling people to throw money at the problems to solve a problem could be considered a genius, then many people could easily become a genius. Our own government would be full of geniuses already then. Solving problems without squandering money away should probably deserve more credit.

When John Maynard Keynes lived back in the 30’s and 40’s there weren’t any fast telecommunication infrastructure, money wiring mechanism, fast speed trading technologies and convenient transportation means, money from either aggressive monetary policies or even fiscal policies could have stayed in the same country long enough to stimulate the domestic economy. Nowadays that the excess liquidity the federal folks have created would simply turn into hot money instantly by the elite minority private equity companies, banks, hedge funds and Wall Street firms to flow into high GDP growth emerging markets to benefit themselves personally with us average Americans still holding an empty bag with not even a bread crumb falling on our heads.

Remember the last time you read in the news about how some investment gurus on Wall Street and the big banks saying they are expanding in China and India as a new strategy and many are moving their operations to Singapore? That is where all our federally empowered low cost of money went and continue to head for. Therefore a new way has to be created that the stimulus money could become local property based and paid out directly to the local residents in local communities here in America for it to have the desired economic stimulus effects of creating local jobs and local economic activities. That is exactly what the SwapRent contract was created to do (please see more details below).

Bernanke often prides himself as a student turned expert of the 30’s depression but I wonder why we all have to buy into the more than 70 year old 30’s solutions and lessons that he and the Keynes worshiping Krugman gang are trying to sell to us to solve our country’s current economic woes. Those solutions may have worked to a minor degree to help countries get out of their depression/recessions in the 30s or 40’s but it is not likely to make any contributions to our country in any way now in this technologically very different world.

Some may also think that it was World War II that dug us out of the economic conundrum in the 40’s, but the two wars we had and still having now seem to have dug us into even deeper troubles. If you don’t have the manufacturing capability anymore, waging wars will only make China and other manufacturing oriented Asian countries even richer, and as for us, perhaps only a few more drone joy stick playing teenage billionaires. Economists and economic historians can tell you histories but what valuable contributions history could provide that is relevant in a totally different environment may be questionable. Managing a country in the modern world by asking them what they see in their rear view mirrors could only bring you a major head-on crash sooner or later.

In my humble views, incompetent government policy makers, like incompetent politicians, should be voted out of their jobs in a true democracy. They should be responsible for the precious time lost in having viable solutions early on to fix our country’s economic problems and the further deterioration of our national economy. A simple apology just won’t do it.

It may not make sense for us to simply sit there to wait for a pat on the back like a school boy by these incompetent policy decision makers and willingly hand over our dedicated research results and hard earned solutions to them to let them save their undeserved jobs, take credit and let their cronies profit from it. We would rather find some other new blood of policy makers just like we would like to find other new ambitious and forceful politicians to champion these causes to bring the economic benefits to our citizens in a new Administration through the election process. In that regard, we have indeed been waiting for these new generations of smart and capable politicians to emerge so that we could wholeheartedly support them behind their back with the implementations of these new solutions as a major part of their economic policy campaign platform.

People do not always get what is most economically beneficial to them. They only get whatever the politicians tell them to get. What we will need to do is to try to find those good future leaders for our country and rally behind their back with these newly invented economic solutions.

For a new alternative proposal on how to solve our country’s current economic problems on a pure free enterprise basis without spending any of the tax payer’s money or incurring further national debts we will need the new policy makers to seriously consider this “New Third Way” to economic policy management. Please kindly make sure you read the Chapter 6 of my introductory article on SwapRent that was published in the December 2009 issue of the Journal of Housing Finance International published by International Union of Housing Finance (IUHF) at http://www.box.net/shared/v24qtqip4hlgff5l1646 and the following blog post.

http://peoplesally.wordpress.com/2011/02/19/02202011-it-is-not-keynesian-it-is-not-monetarist-perhaps-we-could-call-it-swaprentism-any-better-suggestions/

Anyway, enough about the background info. The reason why I felt strongly that this complete transparency of what had happened to date is necessary so that I would not be advised and recommended to spend the next 6 years going round and round with the same people in power again. They already had their chances but they chose to lead our country down in a different path of what we have today. AAA credit and economic super power status could not be reversed back so easily and the debts that they have piled up won’t go away any time soon. The top Wall Street elites may pretty soon migrate to China to pursue further personal wealth for themselves. You and I will be left on our own and we’d better start planning our own futures together on our own soon.

The SwapRent solution should also better come after FARJHO has been successfully implemented. What I propose now regarding implementing the FARJHO program is that we would like to invite the state, county and local housing authorities, housing finance agencies, pension funds, endowments, foundations and local credit unions, community banks, non-profit groups, to join us in a proposal to create a national operational critical mass to handle large scale deployment to help FHFA implement the FARJHO based solutions and perhaps at a later stage, the SwapRent based solutions to avoid foreclosures as well. More on that later.

Each of your housing authorities, housing finance agencies and non-profit groups locally will handle the local FARJHO transactions and we will continue to advise and conduct the necessary training seminars to your staff and your trainers for your local organization to be able to conduct the actual local deployment yourselves. We will also work on creating a national standard of practice for these new FARJHO structures, taking each individual State laws into consideration. This could all be done on a non-profit basis but we do need funding and operational support to make this a reality.

I would like to sincerely invite each of you to step up to the task and do whatever you could from your end to make the necessary contributions in order to save our country’s economic futures together. Sorry about the long post but full transparency is probably the best way going forward to make this happen to the full benefits of the American people without any potential interference by biased politics or any privileged private groups.

Although the current purpose is to make a RFI response to FHFA together, our alliance should target a broader audience on a pure free market basis beyond simply helping the GSEs and FHA to clean up their own mess. While the need of GSEs and FHA may be a burden that we will need to address on patriotic grounds, they are not the one who would get to call the shots on what directions the FARJHO program should head in the future. Politically nobody has decided on their destiny yet since they are too big to fail at the moment. We should not let FARJHO be a sacrificial lamp to feed the monsters and let them refuel and grow again to postpone their eventual bigger ultimate implosion at very American citizen’s even higher expense.

Therefore, I hope there are some other alternative stronger organizations politically and financially out there who are willing and capable to take on the challenge to lead this project. We will be quite happy to play a secondary support role to provide the necessary intellectual properties and training efforts to make the team effort more successful. Please feel free to contact me directly for a further more private discussion. Thanks again.

Ralph Y. Liu
Managing Director
PeoplesAlly Foundation
23 Corporate Plaza Drive, Suite 133
Newport Beach, CA 92660
Tel: 1-888-456-8881 x 888
Fax: 1-888-315-3831
info@PeoplesAlly.org
http://www.PeoplesAlly.org
http://www.twitter.com/SwapRent
http://SwapRent.com/blog/
http://www.linkedin.com/in/ralphyliu

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Housing, InvestorsAlly, PeoplesAlly, SwapRent, , , , , , , , , , , , , , , , , ,

0819 2010 How and when to apply the new FARJHO (Flexible And Reversible Joint Home Ownership) structure?

The following information is on how to apply the new economic concept of the separation of shelter value (use value) and the investment value (economic value) of a conventional ownership of a real estate property. For more details please visit our commercial site at http://www.InvestorsAlly.com or our non-profit operations at http://www.PeoplesAlly.org to assist low income working families with increased housing affordability and enhanced neighborhood stability.

Example 1 – From aspiring home owner’s perspective:

A home seeking person who currently rents identifies a property in a geographical area of his/her choice. He/She has the 10% of the property in cash from his/her own savings and would like to seek to jointly own the property with other investors as the ideal home owning structure.

The reasons could be because that he/she may not have enough monthly income to qualify for a conventional mortgage, prefers to use the discretionary monthly income for other household expenses, does not think the property value may increase in the near term, for his/her particular religious belief that rejects the lending/borrowing concepts or simply any other personal preferences.

He/She commits to pay a pre-agreed rent to the FARJHO LLC that holds the title of the property for a specific period of time. The remaining 90% property ownership could be shared among up to nine other individual, corporate institutional or even governmental entities.

Example 2 – From joint property investor’s perspective:

A group of investors have identified and bought a particular single family house at bargain price through a syndicated LLC structure either through a short sale process or from a bank’s REO portfolio.

The syndicator of the FARJHO LLC tries to find a long term renter of this single family house in order to generate stable long term rental income. Many renters do not commit to the long term and do not usually care about the houses that they rent.

The syndicator/property manager makes an offer to a qualified renter who has the ability to pay for a small percentage of the property value and invites him/her to join the LLC as a minority stake holder/member himself/herself. Once the renter becomes the minority homeowner, he/she may intend to stay for the long term and would treasure the property and take good care of it as thought it were his/her own. In fact it is indeed his/her own, albeit partially. Although he/she does not have the economic income capability normally required to own the property entirely he/she gets to enjoy the high quality home in the neighborhood of his/her choice.

Through buy/sell agreements between LLC members, the homeowners could increase his/her equity ownership through buying existing member’s interests. Alternatively, he/she could use SwapRent contracts to do so when they become available at REIDeX in the near future. In the worst case scenario, he/she could also become a LLC member in another property in the same neighborhood whenever he/she has the increased economic ability to do so and would like to have more investment exposures.

Comparing with conventional commercial property investments, FARJHO offers property investors less worries about vacancy and expenses. The investor’s SGI (Scheduled Gross Income) equals to his/her GOI (Gross Operating Income) and also to his/her NOI (Net Operating Income) since both annual vacancy loss and expenses are most likely zero in a FARJHO structure.

Example 3 – Current application opportunities in the US:

A homeowner currently has a deeply underwater house. He/She contemplates a strategic default on his/her own house but does not like the idea of becoming an apartment renter. A buy-and-bail strategy sounds more appealing to him/her. He/She could use an all equity based FARJHO (SM) structure to become the minority owner/renter of an alternative property in his/her neighborhood before he/she begins discussions with his/her current mortgage lending bank to give up his/her existing homes in either a short sale or a flat out walkaway foreclosure.

The strategic defaulters usually could not secure another mortgage to buy another comparable home before or after he/she walks away from his/her existing home. To qualify for a new mortgage on a second home, he/she has to either have 30% net equity in his/her existing home or a very large fully documented monthly income to qualify for the mortgage payments of two homes. This is often not the case with most upside down homeowners.

An all equity based FARJHO co-ownership structure makes it convenient for a smoother transition to a long term comparable or even nicer and often more spacious home through a partial equity ownership without having to lose the homeowner status by becoming a conventional apartment or house renter. It may turn a somewhat embarrassing, face-losing event into a move-up in prestige as a partial owner of a much bigger and nicer house!

Example 4 – How to use borrowing (through Borrow-Pool-Buy, BPB method) to achieve leveraged higher investment returns under FARJHO:

In a FARJHO transaction, each individual member co-owner can decide whether to borrow for their portion or not. Cash rich investors do not have to borrow. No group decision or action to borrow together is necessary. If some of the co-owner members want to borrow individually for themselves, then the borrowing leverage (LTV) is up to each of the members individually and their individual lenders using the percentage ownership in the legal entity or the corporation as the collateral.

So let’s say a home which is worth $100,000 is being bought by a FARJHO LLC. Three members, A (20%), B (40%) and C (40%) pooled the capital to form the LLC to begin with so that the LLC had the money to buy the home. LLC did not and will not borrow any money or use the property as collateral to borrow any more money. Since neither the FARJHO LLC nor the home property itself owes any money, therefore there is no possibility of a foreclosure of the home property, ever!

Member A was supposed to be the home occupier (AHO), so he pays the LLC a market based rent every month for 3 years say in a 3-year lease as an example. It could be any lease maturity and will be determined by all the members in the LLC.

In terms of borrowing, Member A did not borrow to come up with the $20,000 since he would not want to pay a loan payment in addition to the rent payment very month. Member B does not like to be burdened by the debt service so he did not borrow to come up with the $40,000 cash either. Member C likes to punt and strongly believes in using leverage to achieve high returns. On the other hand, he does not have enough money for the required $40,000. Say he only has $10,000 in savings so he borrowed $30,000 from a lender using his 40% share or member interests in the LLC as the collateral for the lender. The leverage that Member C uses is 75% LTV of his partial member interest in the LLC and his down payment equals to 25% of the value of that partial member interest.

So in the example above, cash was used to purchase the property entirely and no borrowing using the property as the collateral was involved. Borrowing activity, if any, will be conducted only at the member level at each member’s discretion only. That is exactly the spirit of the new FARJHO concept and method to own homes, irrespective which country the homes or the home owners are located.

Example 5 – Section 8’ed FARJHO – AHOs who are Section 8 rent payment assistance recipients

A current Section 8 rental assistance payment recipient inherited $50,000 from his parents. She does not want to put it in the stock market or any mutual funds which she is not familiar with and she thinks those Wall Street stuff are too risky. She wanted to use it to buy a home but the amount is not big enough to buy in an all-cash deal. She can not use it as a down payment to borrow any mortgage because no lenders would be interested in talking to her due to her low income status. The lenders do not believe that she could generate enough monthly income to service a mortgage payment.

She heard about the new Section 8’ed FARJHO program from the local housing authority from her city. She found out that she could team up with a few free market based Joint Property Investors (JPIs) to form a FARJHO LLC to buy a home together and get the new home qualified as a Section 8 property. She could then simply apply the rent payment assistance from the existing Section 8 program as the rent payments to the FARJHO LLC. In this way she would not only just be a renter but also become a partial home owner under this FARJHO arrangement.

Since she is not restricted to renting from a multi-family apartment complex in the run-down districts only, she decides to buy a REO single family house from the Fannie Mae Homepath program in a decent neighborhood as her dream home. The cost of the house is $300,000 in a city in Southern California. In this FARJHO structure she would own 1/6 of the equity ownership of the FARJHO LLC.

The remaining balance of the house price was paid by five other free market based investors. Investor A and B who put in $30,000 each are individuals using their retirement money in their respective IRA accounts. Investor C who put in $100,000 is a local public employee pension fund. Investor D is a foreign individual and he put in $40,000. The remaining $50,000 was put in from an individual property speculator who prefers to use leverage to enhance the potential investment returns. He put down $10,000 cash and borrowed $40,000 so that he could deduct the interest expense for this investment.

The Section 8 recipient gets $1500 monthly rental assistance from HUD every month. She contributes an additional $200 so her total monthly rent paid to the FARJHO LLC is $1,700. This equates to an annual rental yield of 6.8% to all members of the investor group in the FARJHO LLC which the Section 8 recipient/renter herself is also a member of. That is her annual investment income for each year she stays in as a 1/6 interest member. In addition, she will also enjoy the financial value of 1/6 of the potential appreciation of the home property.

The free market based investors are interested in teaming up with the Section 8 recipient over other regular higher income AHOs because they might think, rightfully or wrongfully, the credit risk is much lower since the bulk of the income rent payments would come from the assistance of Uncle Sam!

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Housing, InvestorsAlly, PeoplesAlly, REIDeX, SwapRent, , , , , , , , , , , , , , , , , , , , , , , , , , , ,

08/18/2011 FARJHO – securitization of home equity vs. securitization of mortgages, SwapRent – real estate derivatives vs. mortgage derivatives

This is a short blog post to clarify the difference between the securitization of home equities (home equity securitization) and the securitization of mortgages (mortgage securitization) as well as the most commonly misunderstood term of real estate derivatives by the some people vs. what they really meant, mortgage derivatives.

The key to understand the difference is to know that the underlying assets are quite different. One is equity in nature, the other is simply a debt. While there are often blatant abuses of debt by both the borrowers and the lenders through loose credit policy and practice, it is not possible to abuse the equity in the same way.

As I mentioned before in many earlier blog posts, securitizations and financial derivatives are extensions to either equity or debt like how glass-and-steel buildings could be built upon a foundation. If the foundation is a solid rock then the chances of the building to collapse is not much a concern as it would be if the building was built on slippery quick sands. So the problem is not the building but rather the foundation where the buildings are located.

Similarly the problems are not as much with either the securitization concept or the financial derivatives rather as with whether they were built on plain equity, conservative low leveraged debt or the risky over-stretched debt conducted on a loose credit practice.

FARJHO LLC member interests are ownership in the equity form just like corporate shares listed in the stock exchanges are in the form of equity. The purpose of FARJHO is to “corporatize home equities” or to “securitize home equities” for the various economic and social benefits discussed in details in earlier posts. It has nothing to do with any debt, loans, mortgages or financial derivatives. It is definitely not in any shape or form, a securitization of mortgages again.

It is as simple as a common stock of companies but the ownership represents a fractional interest in a homeowner’s home property instead, that is made possible by this new FARJHO concept.

SwapRent, on the other hand, is a new consumer version of equity based real estate derivatives or alternatively called, property derivatives. It is not a mortgage or a mortgage derivative. It is the various forms of mortgage derivatives, credit derivatives, CDOs, Credit Default Swaps etc. that have played a major role in the financial crises within the past few years, not these new “real estate derivatives”.

Therefore, although there seems to be plenty of hostility by certain people about financial innovations, mortgage securitizations, mortgage derivatives, the responsible, intelligent and educated consumers should have no problem in understanding that FARJHO and SwapRent are not related to any of those that have caused controversies in the past. Furthermore they should be regarded more as social innovations in housing and new home ownership concepts than purely another financial innovations for facilitating investors to make money more easily. Even though they do that as well, and they do it much more efficiently.

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Housing, InvestorsAlly, PeoplesAlly, SwapRent, , , , , , , , , , , , , , , , , , , , , , , ,

0802 2011 Implementation Strategies of FARJHO and SwapRent – good economic stimulus public policy or cornering the real estate market by investors for profits?

A very obvious winning strategy of implementing either FARJHO and SwapRent alone or together is to simply concentrate the investments and focus on a few selected neighborhoods in the US, perhaps some mid-sized cities in Southern California.

Let’s have a quick review on the economic concepts of the investing dynamics first. Real estate market as an investment asset class is often more about the Beta than the Alpha as compared to investing in the stock markets. Although that sounds a bit academic to many people but what it means is actually very simple. The way the real estate market moves ups and downs depends more in sync with the country’s economy policies made by the government as a whole, even with the consideration of regional economic factors and/or individual homeowner’s specific maintenance and caring of their properties. The residential real estate market in the US normally behave with a much higher correlation to government dictated lending policies than individual home improvements.

On the other hand, individual companies could much easily out perform or under perform the US stock market and behave individually based on their own individual earning power, management merits and demerits, irrespective what the government’s fiscal or monetary policies are.

As a result, whenever there is a lack of prudent and wise governments policies, the entire country’s homeowners in America suffer. The supply and demand factor of the residential real estate market has always been solely determined in the US by the interest rate levels and the degree of the looseness of credit for people to borrow to own homes.

In the past, local governments or free market based private sector investment companies could not alter the local market supply and demand factor since the interest rate levels and home mortgage credit policies have been determined solely at the federal level and by the big banks on Wall Street. In addition, single family houses are much more difficult to manage than apartments as income producing investment properties in the past since people who could rent were usually urged to buy with or without the ability to service the mortgage loans. As a result, renters for single family houses in the suburbs are difficult to find and keep. The arrival of FARJHO and SwapRent have finally found a way to change that situation.

Now through the new FARJHO structure, SwapRent transactions and their secondary markets, local government housing agencies, pension fund managers, free market based private sector investment companies and/or individual investors could finally alter the local property supply and demand factor and drive the prices of the local property markets up (and down if necessary) irrespective of what the federal government’s fiscal, monetary and housing policies are at any given point in time.

The very simple concept for local community economic growth is that the more fresh new money pumped into the local economy the more likely the local economic activities could be revitalized when the money is put in good productive use. The FARJHO structure and SwapRent transactions could make this simple economic concept a reality and make the economic miracles happen in the local communities without having to rely on tax payer’s money or risking a hyper inflation by altering the interest levels further.

First FARJHO could help any new home buyers and joint property investors buy more homes using cash on hands without relying on credit for debt financing and hence create demand for homes and support the local property price level.

Second, on top of the demand created by FARJHO, SwapRent could help distressed homeowners hang on to their homes and hence remove the selling pressure in the local property markets. In addition, as also explained before, SwapRent could also help speculators buy more properties by sharing partial appreciation with other free market investors and hence increase even more buying demand for homes. Furthermore, SwapRent could also be used to finance local small business investments by entrepreneurs who are property owners and hence create more jobs. Even rich home owners who do not need the cash could also take advantage of the free market based SwapRent program and hence increase dispensable income and create higher consumption powers in the local communities. These were all fully explained in previous blog posts.

http://swaprent.com/blog/2011/02/19/02202011-it-is-not-keynesian-it-is-not-monetarist-perhaps-we-could-call-it-swaprentism-any-better-suggestions/

http://swaprent.com/blog/2009/12/06/12062009-how-small-business-owners-could-use-swaprent-transactions-to-create-jobs-at-grassroots-level/

The main reason why the FARJHO structures, SwapRent contracts and the associated secondary markets could work much better in bringing back the local economic prosperity than the conventional ways of property ownership is that they could attract much more fresh new investors’ money through the ease, the flexibility and the reversibility features with which the real estate investors could manage their investments much better, faster and cheaper. FARJHO and SwapRent in a sense will make the previously “un-investable” single family houses an “investable” new asset class for institutional investors around the world.

As some free market based investors are currently comprehensive about the lack of obvious immediate appreciation potential for the US residential real estate markets due to the current unhealthy government sponsored economic policies, aspiring home owners, local government agencies and free market based investors could indeed create by themselves the demand for properties in the local market through FARJHO and SwapRent. When the more fresh new money has been poured into the local economy, the more likely the property value would have been driven up, the more free markets investors would be further drawn to investing in the local markets and the more aspiring home owners from neighboring communities would also choose to relocate to these local communities to own homes. Creating the local property appreciation and economic prosperity in a confined geographical area could indeed become a self-fulfilling prophecy.

The key concept here is that smarter investors would most likely want to focus all their investments in a few selected neighborhoods with those wise local government officials who want to help facilitate these investment and economic revitalization processes to attract fresh new money so that there would be enough gun powder concentrated on these selected area to get the bang on the buck to artificially create the necessary debt-free property appreciation. With the local property value appreciation, all the current local government deficits, local economic weakness, local resident’s joblessness and the associated social problems could all be eliminated in one fell swoop.

In a sense, maneuvering these property price dynamics could be interpreted as cornering the market for illicit profit by a few individuals to benefit themselves. However if the end results are to benefit not the privileged few but the majority of the home owners in these local communities and the local governments, then cornering markets could indeed be euphemized and re-termed “economic stimulus” to bring back local economic prosperity instead.

In reality, cornering the markets of stocks and bonds was exactly what our federal government and the Federal Reserve Board have successfully tried to do in order to make the Wall Street folks richer and the big businesses awash with cash in recent years with their wasteful fiscal policies and unconventional monetary policies that have built up our country’s uncontrollable national deficits. Since the bubble building techniques that they have employed were based on money they did not have, those bubbles are doomed to burst some time down the road. Perhaps they had hoped for that there would be enough bread crumbs to fall to Main Street for people there to survive but that did not happen and of course would not happen.

What they had failed to find a solution for is a viable way to reinstall the debt-free or less debt dependent property-based wealth in local communities and to revitalize the economic prosperity on Main Street throughout the country to make the majority American people rich again. FARJHO and SwapRent were designed to accomplish just that.

If the incumbent Administration officials could not understand and handle this, certainly the new generations of aspiring politicians should take heed of it before it is too late.

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Housing, InvestorsAlly, PeoplesAlly, REIDeX, SwapRent, , , , , , ,

0704 2011 Confusion on Various Equity Sharing Schemes – Why FARJHO and SwapRent are more social innovations than simply financial innovations.

As I once commented before, if a person is new to the French language or the Greek language, he/she probably would not be able to tell the difference between a baby gibberish vs. a poetic recital as both are “new and foreign” to him/her. It is all Greek to him/her so to speak. That seems to be the current situation with many people when they started to learn about the property equity sharing concepts and methods for the first time. Since both the concepts and the methods are all new to them, many people find it hard to tell a good method from the not-so-good or not-so-smart methods.

Shared equity “concepts” as applied to real estate property is not new. As mentioned before, the Brits have been applying them for over three decades but since the “methods” such as “shared equity mortgage” or SEM and “shared appreciation mortgage” or SAM had not been developed so well, they remain a government led socialism oriented facility so far to assist the poor in their country. Few, if any, free market based investors or participants have been interested in participating. Some British banks got black and blue bruises all over their face when they tried those primitive methods in the 80’s. There have also been some copycats of those exactly the same ideas and methods but re-bottled and promoted in the US and Australia with little success within the past few years.

What makes FARJHO stand out? Well, here is a short recap as a patriotic 4th of July message.

Three unique features make FARJHO different from all the other “equity-sharing methods” or various other “shared equity schemes” ever proposed or practiced so far.

First, the FARJHO/LLC owns one home at a time as “a single family solution”. So the goal of FARJHO is to ensure the sanctity of individual home ownership for individual citizens one home at a time under pure capitalism principles, not a defunct or hippy-ish multi-family commune, land trust, kibbutz or socialist compound concept. We do not have to turn our country into a socialism or communism society to help the poor!

Second, unlike SEM, SAM or all other shared equity schemes proposed by other academics or practiced by other private companies so far, FARJHO does not allow, or does not encourage at least (remember it is a free market democracy and no dictator allowed), any borrowing at the property level to use the entire home property as collateral. All other equity sharing methods are schemes developed to make Wall Street loan sharks even happier so that home owners and investors who gang up together can go crazy leveraging and punt again. Do some simple research through Google searches and you will quickly know what I meant. Those shared equity properties that borrow again at property level may still get foreclosed. They may make the elite minorities on Wall Street happy again but there are few, if any, social benefits in those schemes to mom and pop families on Main Street.

With FARJHO, going forward in the future, borrowing will no longer be the only way for people to own homes. There is no reason why the home property purchase could not be done using all pooled-together cash. The term “foreclosure” may even become obsolete when people started to apply borrowing only under the FARJHO proposed concepts, i.e. borrowing at the member level instead of at the property level. AHO (Aspiring Home Owners) and JPIs (Joint Property Investors) could decide to use prudent leveraging individually before they come to the table to form a FARJHO LLC to own the home. Once the FARJHO LLC is formed there is no more borrowing allowed at the property level so that banks or anybody else in the world would never be able to seize the property from the tenant/partial home owner in a FARJHO structure.

Therefore if and when any of the leverage-loving FARJHO/LLC members ever loses his or her own debt servicing capability in the future, he/she could drop off quietly individually without jeopardizing the stability and occupancy rights of the home property for AHO or the investment security any other JPI investment members who own the rest of the interests in the property. This defaulting member could simply sell the percentage member interests in the property that he/she owns to any other people in a free market or turn them over to the lenders if he/she had financed the purchase of these member interests in the beginning.

Thirdly, it provides an enhanced stability for the home occupier through a voluntary feature offered by the Aspiring Home Owners (AHOs) to the other Joint Property Investors (JPIs) to use the AHO’s equity stake in the FARJHO LLC as a buffer for JPIs to deduct the missed monthly rental payments by the AHO so that the AHO would not be evicted so easily until the buffer runs out. It therefore offers much more home occupier stability than any other rental arrangements.

In a bigger picture for the society, when lesser credit-worthy aspiring home owners have resorted to these new socially beneficial equity financing methods, what is left for the banks to lend to, using conventional mortgages, will be much better credit quality home buyers/borrowers. More free market based consumer choices will always be a win-win situation for everyone under the uninhibited capitalism. So there is no reason for those good banks or good capitalists on Wall Street to fear or feel threatened by these socially oriented new inventions.

More summaries on the social benefits of SwapRent will be described again later. Many of them could of course already be found at the SwapRent.com web site.

So today’s message on the 4th of July, 2011 is really – you can still be a capitalist to provide social benefits to the working class people in America. For doing that we may need the American people to acknowledge and accept these new social innovations under capitalism operating principles rather than keeping asking for bail-outs or hand-outs. In addition, we will need the ultimate transparency in their implementations so that the new innovations would not be stolen, hj-jacked and abused to benefit the privileged few when landed in the wrong hands by the dark forces of the elite minorities in our society again.

Filed under: Cash Flow Sharing, Economic Viewpoints, Equity Sharing, FARJHO, Housing, InvestorsAlly, PeoplesAlly, , , , , , , , , , , , ,

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