Category Archives: Federal Government

0522 2013 FARJHO is the answer to Rep Loretta Sanchez’s question to Fed Chairman Bernanke today.

In Bernanke’s testimony today, Representative Loretta Sanchez asked about how middle class families who had lost their homes in the downturn have been unable to regain home ownership in the current housing price run-up made happen by the new hedge fund land lords.

Immediately following that, Senator Mike Lee asked Bernanke about the potential danger in repeating the previous credit bubble by the current loose monetary policy and easy credit again pop up the housing sector.

I am glad to see that the politicians will finally start realizing the problems with the Fed’s monetary policy and the Administration’s housing policies. I think they both may want to read my recent previous blog posts below to find the answers to their questions and assume a leader role to take the necessary actions with FARJHO to correct these serious middle class home ownership problems in a timely manner. It would be nice if only they could start watching the short introductory video about FARJHO to begin with. http://www.youtube.com/watch?v=UV0hUjAGUZg

Anybody who knows them, please feel free to forward this post to them. Thanks.

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0403 2013 Let ex-middle class propertyless Americans co-prosper with the property investors through FARJHO

I watched David Stockman’s recently comments on TV about the phony money economy and the great recovery of the 1% created by the Fed’s money printing. I can’t agree with his thoughts more.

As I also said in many of my blog posts before, if the Bernanke-led Fed loves blowing bubbles so much, why did they (including Ben himself) even bother to rush to pop the previous bubbles back in 2004 to 2007 to create the financial crisis to begin with? It could have been managed in a soft landing without those bold moves to raise interest rates back then. Innovations in economic methods and tools could have made a major difference if only they were willing to learn a few new things.

Equity sharing concept has been around for quite some time. All that was needed is a better mousetrap in new business methods to implement that old simple concept. If they had applied themselves to conduct more innovative research and thinking they could have come to some solutions similar to the FARJHO structure invention themselves. Since that is not the case, it has made the FARJHO method much more difficult to be adopted since it was not invented there.

Now that they have created the havoc in 2008 that has made many parts of the Western world’s economy upside down ever since. The prescription they have given to our dilapidated Main Street economy was nothing more than to go back to blow yet more bubbles all over again on Wall Street, and with the might of a nuclear arsenal to re-inflate a phony economy in a way that would make Greenspan’s previous loose monetary policy looks like blowing a small bubble gum.

The net result of this whipsawing interest rates induced flip-flop instability of ours and the global economy they have created from popping and re-inflating the bubbles is the quantum shift of our nation’s property wealth from the 99% to the 1%. Ex-middle class Americans lost their homes when the Fed blindly popped the bubbles without any rescue plan for the aftermath. Now with the extreme low interest rates to re-inflate the economy that only the well-connected institutions and the wealthy individuals left from the aftermath could benefit from, properties were snapped up by these elite property investors left, right and center. Whatever happened to the government’s lofty goal when they setup the GSEs to help American citizens to realize their American dreams of a home ownership?

We plan to launch the FARJHO services under our non-profit organization PeoplesAlly Foundation as well so that low income working families could also enjoy the new benefits of FARJHO. Hopefully we could do our share to help restore the ex-middle class Americans back to be property owners again. Please help support our membership drive crowdfunding campaign at http://igg.me/at/PeoplesAlly/x/2666771 .

There would also be many opportunities for institutional investors to work with us in this mission. They could either partner with us to set up many co-branded series of FARJHO Funds in different geographical area as seed funds to show case to free market investors the enhanced economic benefits or they could simply set up their own funds to co-invest in the FARJHO programs that we help the low-income homeowners with. The Fund does not have to be non-profit itself. The Fund will simply selectively invest in the non-profit Foundation’s FARJHO projects on a pure free market basis.

It is indeed an opportunity to do well while doing good for these participating free market investors. In this way, it also helps us keep our efforts on a pure free market basis as well, which is central to our belief that capitalistic methods could be more efficiently and effectively used to achieve social goals.

0315 2013 PeoplesAlly Foundation’s crowdfunding project on Indiegogo

Please help support PeoplesAlly Foundation’s crowdfunding project on Indiegogo. Contributions are tax deductible.

http://igg.me/at/PeoplesAlly/x/2666771

PeoplesAlly Foundation is a 501(c)(3) not-for-profit organization headquartered in Southern California that focuses on providing portable housing affordability to low income working families and helping regular middle class home seeking Americans to own homes without the use of debt.

Its main service is an innovative creation of a new home co-ownership structure called FARJHO (Flexible And Reversible Joint Home Ownership). PeoplesAlly Foundation helps educate the public and promote the awareness of the availability of alternative free market choices for consumers to own homes without incurring debt.

Through its affiliation with the online home equity crowdfunding portal site http://farjho.com as well as the offline FARJHO Funds, it aims to ultimately conduct FARJHO matching services in conjunction with the efforts of the state and local housing agencies. A dedicated website http://wehomeowners.org will be set up to serve as the portal for the foundation’s members.

 

 

0304 2013 FARJHO offers a unique ability to curb wealth distribution inequality through home co-ownership

Although FARJHO was not created specifically with the egalitarian motive for helping the poor but rather a creative win-win free market based solution for both the aspiring home owners with less financial means and the well-to-do property investors to build wealth to co-prosper together, the equity sharing nature of FARJHO does offer a timely help to prevent further inequality in the wealth distribution among our country’s citizens under our current economic situation.

I refer back to the proposal we had submitted to FHFA back in September, 2011 in response to their public RFI, https://www.box.com/s/hpfqqajd1aremco716lr . The proposal was primarily for the GSEs to consider selling the single family homes in their foreclosure portfolios to both retail aspiring home owners and the Wall Street hedge funds or DC private equity firms together as fellow FARJHO LLC members for each single family home, one home at a time, rather than selling these single family homes in bulk, at heavily discounted prices, only to those well-connected hedge funds and private equity firms as profiteering middlemen.

Rather than treating the ex-middle class American families as the new serfdom renters to those new noble PE and hedge fund landlords via selling our national assets (these foreclosed homes are owned by the government sponsored Fannie and Freddie via our tax money), the GSEs could use FARJHO directly to sell equity stake in each single family home directly to both the PE firms, hedge funds or crowdfunding investors and aspiring homeowners who could not obtain a mortgage, at the same price, on the same terms and at the same time so that no rich fund operators need to become the new landlords and no property speculators who have access to easy credit need to buy at deep discount in bulk from the GSEs in order to flip the properties before these single family homes get to be rightfully sold to the home seeking end users.

Somehow the built-in democratic wealth distribution inequality correction features of FARJHO have not been properly understood and adequately communicated to the public over the years so far since its creation in 2009. As a result, hedge funds and private equity firms continue their feasts on buying up the single family homes left and right to become the new landlords in our economic society. The ex-middle class (and now homeless or propertyless) Americans continue to be told that the Fed’s low interest rate policy and the Administration’s housing policy have worked magic in bringing about a great economic recovery in American housing sector and they actually need a pat on their backs for the good jobs they have done for our country.

Meanwhile, the fleecing of the GSE’s foreclosed single family home portfolios continues. Isn’t it the greatest heist of the American wealth by the concentrated privileged few, while aided by the government’s misguided economic policies, right in front of our eyes? I think we do urgently need some politicians who could understand what FARJHO is and what the new FARJHO related home ownership solutions could provide in order to help curb these serious problems of furthering inequality in wealth distribution among our citizens caused by the current abusive government housing and interest rate policies in a timely manner.

For more introductory information on FARJHO and how it works please click on the following link to my draft paper on FARJHO, https://www.box.com/s/n4sg1odf8su6fmfhrv21 or visit http://InvestorsAlly.com and the home equity crowdfunding portal site http://FARJHO.com .

0126 2013 Differences between FARJHO, Shared Equity Mortgage and the LLC syndication for commercial properties

This is a very commonly asked question and has been addressed many times before in the blog. Here is a short recap. In short, the main difference is in the way to use leverage under the different structures.

Although both FARJHO as a new home ownership structure and the pooling of capital to make a commercial property investment both could employ the use of a simple LLC legal entity to accomplish their respective objectives, the outcomes could not be made more different due to their respective very different objectives!

In the conventional commercial real estate investment, the use of an LLC entity is to pool enough money so that the group of investors could borrow as much as possible in order to potentially achieve higher leveraged returns (or leveraged losses, it works both ways!). The objective of the use of an LLC is to shield the individual member investors in the LLC from the potential liability to the lender in the event of a default which may be caused by insufficient income cash flows from the property in the future. This conventional way to use borrowing to make real estate investments is described by a new term that I had created a while back called Pool-Borrow-Buy (PBB).

FARJHO, on the other hand, is employing a newly created alternative method under a new thinking called Borrow-Pool-Buy (BPB) to make investments in single family homes.

The advantage is that for investors who love to use leveraging for investments could still use borrowing, but only at an individual LLC member level under a FARJHO transaction, not at the group LLC or property level as how it was always done in a conventional mortgaged home ownership. As a result, FARJHO introduces a newly created social value by increasing the home occupancy stability for the renter/co-owner in a FARJHO LLC structure. This is simply because there is no mortgage, i.e. using the property as a collateral to borrow money, under a FARJHO structure and hence the home will never face the risk of a foreclosure by any lender.

Such a simple innovation in concept and practice could help us universally eliminate the foreclosure possibility in home ownership in our modern economic society, no matter where the home owners lives in the world.

As for the conventional shared equity mortgage, shared appreciation mortgage, and shared ownership mortgage, … etc. as most popularly practiced in the UK and to a small extent in Australia, although they do not use an LLC legal entity, the objective of the share equity component is still to pool enough money so that the shared owners could use that pooled money as a down payment to borrow a mortgage using the property as a collateral again to buy the home, i.e. another Pool-Borrow-Buy (PBB) method that will be subject to property repossession risks. This PBB practice in these old style shared equity mortgages is nothing different from how commercial property investors use an LLC structure to pool money, borrow and buy properties. The evil of the potential risk of foreclosure still exists. These old shared equity mortgages only introduce more lending and ownership disposal complexity without contributing much to housing affordability due to its limited acceptance by the lenders.

In FARJHO’s case, this lender’s dictatorship and the ownership complexity do not exist. Flexible and reversible shared home ownership under FARJHO could eventually be done as easily as buying and selling of a stock in a private or a publicly listed company on an exchange.

Lenders pretty soon would discover that they could easily develop a new profitable business by embracing this new “security-lending” business opportunity using LLC member interests as collateral at the member level instead to FARJHO LLC members.

For those old school mortgage lenders who would like to hang on to the old way of doing home mortgage business would also soon find out, to their pleasant surprise, the credit quality of their mortgage borrowers would be much better than before since the lesser credit borrowers may have all gone through the new equity sharing route and absorbed by using the new FARJHO structure. There seems to be no need for the lending banks to make more ill-conceived inventions such as a teaser rate or an Option-ARM to subprime borrowers any more.

It would indeed be a win-win situation for everybody.

1202 2012 Conference speech – FARJHO as a solution to the scaling problem for property investors

I spoke last week as a panel speaker on the scaling issues for investors at a conference for institutional investors to treat single family residences as a new asset class for institutional investment. The conference is dubbed “Single Family Aggregation : REO to Rental Forum – A Forum for Private Equity, REITs, Institutional Investors and Bank Rent-to-Own Programs” organized by IMN on November 29 to 30 at Scottsdale, AZ, http://www.imn.org/Conference/Single-Family-Aggregation-Strategies/Short_Agenda.html. The following link is a copy of my presentation slides “Introduction to FARJHO and SwapRent”,
https://www.box.com/s/wmyjnwhzm8yagrf9gjkx.

Until today, institutional investors such as corporate pension funds, insurance companies, university endowments and non-profit foundations have not been able to treat the single family homes as a separate investment asset class. What is the main reason?

Single family homes, unlike a multi-family residence apartment building, are usually spread out in many different sub division development projects in the suburbs. The management of the entire operations that include the maintaining each individual property with its own landscaping and the dealing with the tenants are usually much more demanding and difficult to handle. As a result, the annual yield derived from the rental income for institutional investors would be reduced for the increased cost to manage these diverse groups of properties spread out in a larger number of geographical locations.

In addition, the turn-over of the renters for single family homes would be much higher since over the past decades, with the easier credit and low interest rates, eager mortgage brokers have found tenants of single family homes as easy preys to sell a mortgage to. “Why rent when you could own at a cheaper cost?” Owners of single family homes hoping to rent would have suffered from much lower annual rental income yield due to the high renter turn-over and higher operational cost for the property maintenance. That by the way also seems to be one of the major reasons why our country has had the sub-prime mortgage induced economic problems at the moment.

The new FARJHO invention which basically turns renters to become co-owners with the property investors at the same time, seems to have solved these problems by killing the two birds in one single stone for property investors. Since the renter would have a vested interest as a co-owner with the other joint property investors in the FARJHO LLC that owns and holds the title of the home property – vacancy will most likely be near zero and the cost to hire a third party property manager is totally eliminated. The renter who is also a co-owner of the property could become the best property manger, care taker, house sitter, business partner for the rest of the joint property investors than a pure renter without an equity interest in the property would ever be. To understand this better, simply ask yourself when was the last time you ever washed a rental car? This seems simply to be another way that the invisible hand of Capitalism is at work again.

As result, both retail investors and institutional investment funds would no longer have to worry much about either potential vacancy or incurring the expense of hiring a third party property manager any more since renters would have a skin in the game with the other investors, and hence, much secured higher yields derived from rental income for all the property investors.

What we plan to do is to use our technology platform at http://FARJHO.com to act as a service provider to institutional funds, accredited investors and/or retail investors from the crowd, i.e. crowdfunding, to find like-minded aspiring and existing homeowners who are interested in the all cash based FARJHO transactions to co-own homes across the country without involving anything related to the conventional home loans or mortgages. The timing will be subject to the successful publication by SEC of the Crowdfunding Rules under the JOBS Act which has been scheduled at the beginning of January of 2013.

In parallel, a currently work-in-progress project of a homeowner’s social networking portal http://WeHomeowners.com or http://WeHomeowners.org will also be set up under our 501(c)(3) non-profit PeoplesAlly Foundation (http://PeoplesAlly.org) for existing homeowners who may consider switching to FARJHO home ownership structure some time in the future. This may even allow the Section-8 tenants to own a small piece of the home equity of a single family home anywhere of their own choice via a Section 8’ed FARJHO that I had blogged about before, instead of having to rent only in a multi-family apartment located at a run-down neighborhood.

1001 2012 Obama’s HARP, Romney’s housing plan, Bernanke’s QEs or the new equity sharing FARJHO under JOBS Act? – with lyrics from Loca People

It is presidential election season again, so we have started to hear more about the candidates’ economic plans. Nothing attracts more attention from the public than the housing issues. Within the past weeks, we have Romney having revealed his housing plans, Obama having pushed again for his HARP, but  none of them has anything economically new to offer other than using it as another chance to repeat the partisan ideological preaching and the fight over whether government led programs vs. the presumed free market ways to let our country’s housing finance problem heal itself may work better than their political rival’s plan. It seems that they only care more about a simple old fashion plan that appears to work better than the other’s plan rather than supporting an innovative plan that will indeed work but that may incur political risks to introduce.

Disappointed, without getting a satisfactory answer in both of their plans, so I went to the Federal Reserve again. There I found out that Chairman Bernanke and his cohorts were still pumping out nothing but even more and more QEs. All day, all night … All day, all night … All day, all night … Nothing but more QEs to push for more loans, more leveraging and more easier credit, hoping not only to bring us back but to further turbo-charge us to where we had started this whole financial mess from to begin with over a decade ago … I can almost hear Bernanke dancing and chanting at the Fed, Viva la Hipoteca! Viva le Prestamo, Viva los QEs! What the Beep!

So I called up my friend Johnny. I said to him, “Johnny, La gente esta muy loca!”

Well, jokes aside, what we really like to do is to ask those politicians with a real workable housing plan please stand up. For the right, it is easy to just say let the free market heal itself. Free market solutions without the government leadership or competition without rules would indeed simply lead to either a crony capitalism or a ruthless predatory free-for-all anarchy. For the left, once they have replaced the crony capitalism and they’ll easily end up with even worse power hungry crony socialists.

What we need is perhaps not yet another round of old ideological political debate now, but rather some educated rational thinking and technically competent debates of what the new and economically innovative ways may be to own homes without piling up more debts as well as what the new technologically efficient and productivity enhancing ways are to deliver these new economic benefits to the consumers without being misguided and fleeced by unscrupulous financial middlemen yet again. These real stuffs to fix our faulty housing finance system may seem to be what the politicians need to focus on in order to bring the real tangible benefits to our country.

This is the 6th year since I have been researching, publishing and blogging on the various economic benefits of using property equity sharing or cash flow sharing concepts and methods to offer many new alternatives to our current faulty exclusively mortgaged home ownership centric housing finance system. Many of these new findings and creations are available to my personal academic research web site, http://swaprent.com.

More detailed info on the SwapRent original creation process in 2006 is available at https://www.box.com/s/437c60e4d8931365b9e4 and on SwapRent application in the 2009 JHFI (Journal of Housing Finance International) by IUHF (International Union of Housing Finance) paper at https://www.box.com/s/feae725ede7042c53412. For the much simpler FARJHO solution, here again is the link to the FARJHO white paper, https://www.box.com/s/cc0de069ab5c3fd3007e.

Thanks to the democratic power of the Internet, SwapRent and FARJHO have conceptually and academically been gaining momentum and endorsement day by day with a world-wide audience. We are currently preparing to solidify these new innovative ideas and beta launch these new consumer services at the transaction oriented http://farjho.com and a broader social networking portal for home owners, http://wehomeowners.com as our free market based solutions to our country’s housing finance problems. The purpose is perhaps much more mission driven than financial. Since these new services could also be offered on a not-for-profit basis, i.e. through PeoplesAlly Foundation (http://peoplesally.org), we do need many supporters from the crowd to come on board to help us make these new consumer services a reality.

As explained in earlier blog posts, due to the recent breakthrough by a few visionary law makers with their innovative regulatory provisions of crowdfunding and the relaxed marketing rules of private placement funds contained in the JOBS Act, we may finally see the light at the end of the tunnel in bringing these new inventions to life as new free market based consumer services soon.

Viva la Innovation, Viva la JOBS Act, Viva la FARJHO!

(Quoted lyric above from “Loca People” by Sak Noel)

0901 2012 New non-debt financing alternatives for homeowners and small businesses as an economic stimulus tool – the crowdfunding of a FARJHO homeownership structure or a SwapRent contract

This is a topic that I have published and blogged about (see historical blogs on these issues at http://swaprent.com/blog) many times before within the past 6 years since the creation of SwapRent in 2006 and FARJHO in 2009. The more I blogged about it each time through the years, the more it seems that it has carried on much more new meaning as our country’s economic situation evolves. With the recent fast paced development of the crowdfunding movement, the potential crowdsourcing availability of the funding for the new FARJHO homeownership structure and the SwapRent home financing method have become more and more relevant.

Let me start out by repeating the urgent need of developing a few new non-debt based financing alternatives, not only just to reform our country’s housing finance system for the sake of increasing affordable home ownership, but also to help create economic stimulus and create jobs for middle class Americans on Main Street.

Debt should not be the only way to finance home ownership but unfortunately mortgaged homeownership seems to have been the only consumer choice made available to the American people for centuries until today. We will need to educate the public, the academic, the government agencies and the lawmakers alike to help create the conducive regulatory structure, make available and foster the growth of the free market, non-debt based financing alternatives for both homeowners and property owning small business proprietors.

Without going into technical details, both the SwapRent and FARJHO business methods were simply created to realize the common economic concept of property equity sharing or property appreciation sharing. SwapRent took one step further by not only being just a new method to implement an old concept, but also introducing a new economic concept altogether. Instead of sharing up-front equity to realize sharing appreciation profit potential and the associated downside risks, SwapRent uses a cash flow sharing concept and method to let investors share potential upside appreciation in property value and the downside risks of losses with the property owners directly via a online portal marketplace REIDeX.com.

More detailed info on the SwapRent original creation process in 2006 is available at https://www.box.com/s/437c60e4d8931365b9e4 and on SwapRent application in the 2009 JHFI (Journal of Housing Finance International) by IUHF (International Union of Housing Finance) paper at https://www.box.com/s/feae725ede7042c53412 .

Within the past few years, the current administration has repeatedly called for the creation of green jobs to help revitalize the national economy while the opposition party plans to create the same old black jobs by trying to do more fracking of we homeowners’ backyards. Irrespective of the debate outcomes on what kind of green, black, pink or blue jobs to create, the 64 thousand dollar question is still on how to come up with additional money to fund new jobs creation via creating new economic stimulus. It is really the greenback, not the green jobs, that is going to get us out of the current economic dilemmas.

While the Monetarists at our Federal Reserve Board propose we continue to print more greenback, Keynesian economists believe we could continue to shanghai the Chinese to cough up more money to finance our national debt in order for the policy makers to conduct more conventional government led fiscal stimulus projects, Solyndra included.

Perhaps, it is time for these policy makers to think outside the box now. What if, just what if, we could create a new free market based business method that could provide fresh new capital into our economy by encouraging free market investors to voluntarily pump their own money into the system, not for charity, but for the potential possibility of making financial profits from the long run recovery of the US economy, materialized through the increased property value of homes and real estate properties throughout the country that they got to “partially” own when they voluntarily agreed to pump their money into our economic system.

Since neither the new alternative housing finance system of SwapRent or the new home ownership structure of FARJHO are based on a lending concept but rather a tradable co-ownership equity financing concept to help our nation de-leverage, it does not have to rely on a low interest rate environment to be effective to create jobs and to stimulate our nation’s economic growth. It is in fact neutral to the interest rate levels and it has its own dimension in influencing the macro-economic activities so to speak.

Therefore, once a SwapRent or a FARJHO market has been established, the Fed or central banks in other countries could raise interest rates at any time, as they see fit, in order to prevent growing further asset bubbles, to fight potential inflation or to save the value of the national currency from potential devaluation without having to worry about its potential impact on hurting the chances of an economic recovery.

The relevance of SwapRent or FARJHO to job creations is based on how entrepreneurs and local small businessmen could create new monthly income cash flows by willingly giving up partial future property value appreciation of their own homes or other properties that they own. This potential appreciation may or may not even be realized by the horizon date (e.g. 2, 3, 5, 8 or 10 years from now) given the current economic situation. Through property equity sharing or appreciation sharing to attract fresh capital injection into the local economy, the potential appreciation in property value could actually be artificially created via a self-fulfilling prophecy as more money could chase up the property prices.

The local entrepreneurs could then pool these new monthly cash flows obtained directly from these new programs to say open a new local restaurant together and hire more people to create jobs or to make any other new investments directly right at the grassroots level on Main Street. They would not have to worry about getting this new found fresh capital injection into the local community to be fleeced on Wall Street first or being diverted by some smart bankers to invest in and stimulate other foreign country’s economies altogether simply for personal gains.

These additional monthly income cash flows would become the local home owners discretionary disposable income that would make them the ideal consumers with a new found consumption power to purchase the goods and services from the small business owners in the local communities.

For the existing home or property owners, a 100% ownership of a future zero appreciation scenario by horizon date is still zero, a partial shared 50% ownership of a future 20% or 30% appreciation scenario of their own properties driven by the new fresh capital injection into local communities induced by the SwapRent program or the FARJHO new homeownership structure will translate into a 10% or 15% (one half of the 20% or 30% total appreciation) gain for themselves.

It would seem a much better deal to co-prosper rather than being left poor alone. Meanwhile with the new swapped current monthly income streams they could enjoy perhaps an additional flat screen TVs purchased at local malls for their family, leasing another new electric hybrid car from local car dealers or eating out more at the local restaurants that the local entrepreneurs had just opened by using the new cash flows obtained through these same SwapRent programs. Wouldn’t this be the American way as usual on a pure free market basis without having to pile up any more debts or to raise citizen’s taxes?

In terms of helping reduce the current foreclosure rate, the homeowners who see the signs of an imminent swift recovery of the local property market will think twice about their earlier plans to walk away from their distressed homes. The only way for homeowners to feel that they should not purposely make a strategic default and walk away from their properties seems to be to somehow make them feel that they might be missing out on a swift recovery if they do walk away, another free market decision making process.

The key new economic concept for these proposed programs to work well is for the policy makers to change from a socialist oriented ideological focus on preferential rescue treatments for distressed homeowners that may most likely cause moral hazards, to “a free market based reversible exchange transaction of a part of future appreciation potential of the properties that they own for a perhaps very generous current monthly income cash flow now” offer which is open to all property owners and may be expediently targeted at a few specific high concentration foreclosure-infected neighborhoods that the banks may have exposures to for the best initial pilot project demonstration effect.

In a sense, the more participation by local property owners and free market investors to the SwapRent program or the FARJHO method the more additional fresh new capital would be injected into the local community through the new third party economic landlord investors. That is exactly the reason why these new innovative programs will have to be open to all property owners to participate without discrimination for the long haul, not just for the distressed homeowners on a short term rescuing mentality. Open up more innovative ways to let the free market forces rein and the economic prosperity will happen at its own swift pace.

If the government wants to take a token leadership, all the government policy and lawmakers need to do is to create law and order to become a good game keeper of these new proposed housing finance system and business methods, no tax payer’s money would ever need to be involved.

Based on pure free market principles, the more people there are in the “targeted neighborhoods” to sign on to this new program the more likely the local property markets and the local economic prosperity will indeed recover and the more likely free market based investors will step on each other’s shoulder to rush to inject fresh new fund into the local communities directly through this new free market mechanism. As a result the more the SwapRent contracts or FARJHO co-ownership member interests will indeed appreciate in value due to the property market recovery that will hence reward the initial SwapRent monthly cash flows or FARJHO up-front equity providers. This new economic concept of a farming approach to wealth creation is indeed a self-fulfilling prophecy in the true spirit of capitalism. The more you sow, the more you might reap.

Wealth creation by enhancing property value in this equity based manner is by no way creating malignant asset bubbles again. Low interest rates will. Malignant asset bubbles are formed when buying interests were created from using borrowed money (or OPM, other people’s money) where owners have an on-going obligation to service debts. The SwapRent or FARJHO approach by nature is based on a tradable economic version of the shared equity financing concept. Equity financing means that owners do not have to service any interest burden of debts. Therefore the benign asset wealth value created this way is not like leveraging created malignant asset bubbles made up of hot air that are usually doomed to burst. The analogy could be more like igneous rocks cooled from molten lava for equity based asset bubbles. This is simply the inherent more stable nature of equity financing vs. debt financing.

When these new alternative tradable equity based home financing objectives have been met, residential real estate properties or homes ownership will soon join corporations to become the dual engines of economic growth of our capitalism society, one for small business and the other for big business. Home financing through debt alone can not make that dream happen, as has been clearly illustrated by the current housing led financial crisis.

Without the stabilization factor of equity, debt financing only creates boom and bust cycles. Therefore instead of a policy of continuing to push banks for more loose credit at this very moment to repeat what had brought us here to begin with, it may make better sense for our government to consider helping the private sector entrepreneurial entities look for new ways to increase the shared equity-based home financing by creating more conducive legal and regulatory framework to let free market forces help our economy prosper.

0701 2012 Shared appreciation methods could be used as a macro economic stimulus tool, not just narrowly be used to let distressed home owners hang on their homes only

While this very same topic has been repeated many times before, I still feel this is where the economic policy makers of our country need to understand most but have failed to do so thus far. Housing, housing finance professionals and mortgage experts may need to work together with the macro-economic policy makers for these new economic concepts’ potential implementation. Shared appreciation or equity sharing techniques and methods, when implemented in an isolated way to distressed home owners only, would not achieve the desired results because they may lack the normal free market incentives and motivations for free market investors’ participations.

This relevant past blog post https://peoplesally.wordpress.com/2011/11/26/1126-2011-we-need-to-blow-up-a-home-equity-bubble-using-equity-sharing-methods-not-debt-like-how-silicon-valley-blew-up-tech-company-stock-market-bubbles/ may illustrate these big picture economic concepts well. For more detailed execution methodology by the policy makers and central banks, please refer to Chapter 6 of the my earlier SwapRent paper (http://www.box.net/shared/v24qtqip4hlgff5l1646 ) published in the December 2009 issue of the Journal of Housing Finance International (HFI) by the Brussels-based International Union of Housing Finance (IUHF).

I would like to emphasize again that equity sharing or shared appreciation methods could not only be used to assist home owners to hang on to their homes in a narrow way, they should better be utilized to facilitate economic stimulus to the masses at the grassroots level to create jobs and revitalize our country’s economy.

The key concept is that only when these new equity sharing and cash flow sharing services such as FARJHO and SwapRent or any other methods and concepts provided by other economists are made available and offered to the public in general, not restricted simply to distressed home owners only, so that the market will indeed have a chance to recover due to these new methods that could foster positive market investment sentiments and expectations.

Free market investors would then more likely participate voluntarily to provide capital in a stampede. If executed correctly, no arms twisting of these free market investors would be necessary for them to throw money voluntarily into the housing market, as long as they themselves see the profit making potential. The way for our country’s economic policy makers could get involved in these new equity sharing based economic policy management tools, would not be that much different in the Fed’s current role of jawboning to create investors’ expectation in the interest rate markets.

Let’s hope the economic team hired by the next Presidential Administration would get to see the light soon.

0603 2012 New non-debt financing alternatives for home owners and small businesses as stimulus to create economic activities at grassroots level

I was recently invited to submit a paper of my economic innovation research work by a government agency again. Here below are the gists of what I would like to present. It is a summary of only what FARJHO and SwapRent are about. The third leg of these related innovations, TARELV (http://www.tarelv.com) which is a new alternative currency pegging system based on real estate and land value, although much more interesting, still seems to be a bit ahead of its time and may remain an academic exercise for limited special interest groups at the moment.

So here below is a quick summary of what my current proposals are.

1.) The distinguishing features of FARJHO as a new business method for a new form of home ownership structure are three fold:

First, FARJHO allows home occupiers and property investors to own only one home at a time in order to maintain the sanctity and the freedom of the single family residence ownership. This is in sharp contrast to many community oriented equity sharing methods of Co-ops, Land Trusts, Kibbutz or Commune types of older equity sharing methods.

Second, as a brand new concept, FARJHO only allows individual member level debt financing to eliminate the foreclosure possibility which exists with conventional property level debt financing such as those in a SEM, a SAM or a Shared Ownership type of other existing equity sharing schemes. Home occupiers could still get foreclosed when they lose their monthly income capability under those older arrangements.

Third, FARJHO provides a natural built-in buffer to conventional renting to avoid potential eviction when the tenants temporarily lose their monthly income capability. The equity stake of the renter/co-owner of the FARJHO structure could act as an optional voluntary collateral against missed monthly rent payments and therefore provides property investors with enhanced investment security through less credit risks and at the same time provides the tenants/co-owners with more home occupying stability during the rainy days in their working lives.

All these new features were specifically designed to make the new home ownership structure of FARJHO more than simply an attractive financial investment vehicle for free market based property investors. Among its main goals is to also provide neighborhood stability and social harmony by eliminating the possibility of foreclosures and reducing the likelihood of eviction for home occupiers.

2.) The three features of SwapRent (http://www.swaprent.com) as a new non-debt financing alternatives for home owners and small businesses are:

It allows home owners or any property owners to share a part of the appreciation potential of their properties with other free market based investors through letting these investors share a part of the cash flow responsibilities in a real estate property ownership so that the current properties owners could obtain alternative temporary non-debt based either short term or long term financing that has never been made possible before.

These goals could be accomplished through the new economic owning, renting and own-rent switching concepts and business methods of SwapRent for managing real estate properties.

It allows home owners to separate the investment value from the shelter value of owning a real estate property, i.e. the issue of the management of the financial investment aspect of owning a home away from the issue of the stability of a suitable shelter or a place to live in.

FARJHO and SwapRent could indeed be used either together or separately.

I would like to emphasize the importance of understanding that both FARJHO and the SwapRent contracts could be perfectly used as new non-debt based financing alternatives for both home owners and small businesses to revitalize the national economy at the grassroots level. These new proposed financing alternatives seem to be exactly what our country and many other countries in Western Europe urgently need at the present time.

Just try to think, when home owners and small business property owners who could not get conventional bank loan financing have run out of all other means, including perhaps items to bring to the pawnshops, wouldn’t it be nice for them to have a new way to get paid by letting other people share a part of the equity of the homes or other real estate properties that they own in the form of either shared equity ownership or simply shared appreciation rights rather than a collateralized or mortgaged debt that would need a steady income stream to service the monthly payments and/or a burden to repay at maturity date.

The delivery of these new innovative services could be performed under the Internet based crowdfunding portal sites such as http://www.farjho.com for FARJHO and/or http://www.reidex.com for SwapRent to bypass the Wall Street middlemen and get the economic benefits of these new services delivered directly to mom and pop small business folks on Main Street. More consumer choices is always a good thing under free market capitalism.

While old school economists like Paul Krugman could continue to bang their heads against the wall to convince governments to tax citizens more, issue more debts and print more money to inflate away the debt problems of the US and many Western European countries, they seem to genuinely naively have a blind faith that there will always be a greater fool to continue to be willing to lend more money or to be taxed more no matter how much worse the situation may get. Why can’t these people simply calm down and think outside the box for once?

Outside of debt financing there are many many other ways to finance economic activities. The equity sharing method should not be confined only at the corporate level in the form of either private equity participation or a stock market IPO.

Countries, sovereign entities at higher levels (e.g. using TARELV) and home owners, small businesses at the lower levels (e.g. using FARJHO and SwapRent) should all be seriously educated on how to take advantage of the new equity sharing concepts and methods made possible by these innovations and their current commercial availability beyond being simply academic theories now.

This also brings back my favorite academic side topic. Try to imagine, if a new Greek TARELV Drachma is backed by the total aggregate real estate and land value of Greece, wouldn’t that be a more attractive currency for foreigners to invest in and hold on to? If the Greek government fails to deliver to let the TARELV Drachma exchange back into other currencies later, you’d end up getting to own a Greek Island?

Germans would most probably vote ja ja with their feet and each individually rushes to pump money into Greece for the rescue of their fellow Europeans! Isn’t that how a free market is supposed to work? There just has to be more innovative free market choices of financing alternatives made available to avoid having to keep on beating the dead horse to pile up more and more debts and taxes to solve economic problems. Again, more info on TARELV is available at http://www.tarelv.com.

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