05/26/2008 What is the difference between HELM (Home Equity Locking Mortgage) or the SwapRent (SM) embedded mortgage product and the Shared Appreciation Mortgage (SAM) that politicians are proposing recently?

FAQ #13: (added on May 26th, 2008) What is the difference between HELM (Home Equity Locking Mortgage) or the SwapRent (SM) embedded mortgage product and the Shared Appreciation Mortgage (SAM) that politicians are proposing recently?

From our numerous earlier efforts and attempts to bring up the public awareness since early 2006, many politicians and academics responded very positively to the use of “shared appreciation” concept to solve our current economic crisis brought about by the increasing number of homeowner/borrower defaults.

Fed Chairman Bernanke has repeatedly recommended the use of the shared appreciation concept and related products to solve the delinquency/foreclosure problems. The most recent one was during his speech at the recent ICBA’s conference. The SwapRent (SM) based approach with its embedded new mortgage product, Home Equity Locking Mortgage (HELM) is a major implementation of these concepts. He first mentioned the use of shared appreciation as a potential solution in a letter to Senator Schumer on August 27th, 2007.

Separately, Boston Fed President Eric Rosengren suggested the use of shared appreciation products in his speech on March 6th, 2008 as well.

Similarly, Fed Governor Randall S. Kroszner proposed to use shared appreciation in the recent Federal Housing Administration Housing Stabilization and Homeownership Act on April 9th, 2008.

There will indeed be many more questions left on the table on how to make this academic concept possible in the real world. Simple non-derivatives based shared appreciation concepts have been around for quite some time, especially in the UK for almost 30 years already. It did not grow to a stage where it should have been simply because there are still many unsolved economic issues that are waiting to be overcome.

When the generic “shared appreciation” concept gets accepted as a fair and equitable free market solution to solve the current default crisis, US lawmakers, Administration officials, academics and market practitioners may attempt to research further for a detail worked-out solution to make it practical and realistically implementable. The big question is that if there is already a proven, worked-out detailed solution made available through years of prior research, there may not be such a need to spend the time and efforts all over again to reinvent the wheels in order to come to the same conclusions. Our nation may not have the luxury to let the politicians spend time and money to engage researchers and practitioners who previously did not even see the need of these new inventions to do the fundamental research and experimentation from scratch again while our economy continues to hemorrhage on the verge of a major collapse. A timely implementation of an already created credible worked out solution with some real tangible actions by the Administration officials is crucial to close the mortgage defaults floodgate and save our national economy in time.

SwapRent (SM) together with its embedded mortgage product called HELM was exactly such a solution with a systematic quantifiable and implementable methodology that had been intentionally developed through many years’ dedicated research that first started way back in 2001, prior to when the real estate bubble that had led to the current credit crisis even got started. Relevant patent applications have also been formally filed with and published by the various patent agencies around the world such as US Patent and Trademark Office (USPTO Application No. 20070244780), WIPO (PCT Application No. PCT/US2007/007094) and agencies at a few other non-PCT countries through the years along the way.

Among many other advantages, the systematic methodology to quantify and extract the risk elements involved in these new kinds of mortgage products and the ability to develop a liquid secondary market of the extracted risk elements through the three SwapRent (SM) transactions (Generic, AG and DP) which in turn could offer risk management capability to the product providers as well as the transparent pricing mechanism offered at REIDeX.com for all participants are probably the most important improvements. In addition, the removal of the homeowner moral hazard related issues will be crucial to make such an implementation successful. SwapRent (SM) and HELM were in fact initially created as a replacement or alternative solution to these existing UK based shared appreciation mortgage industry to begin with. To a certain extent, HELM and FVCM were also meant to be the better alternatives to the existing overly expensive, inflexible and restrictive reverse mortgage products in the US.

Post a comment or leave a trackback: Trackback URL.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: