Shared appreciation mortgages, a once obscure mortgage product, can stem the rising tide of foreclosures and bank failures.
In SAMs, the lender takes a portion of future home appreciation in return for an interest rate cut – say 50 percent of future appreciation in return for a 2 point rate reduction
For the homeowner, keeping half the home appreciation is better than no home at all. And for the lender, less interest beats no interest at all.
Unlike everything else being discussed, this product gives no one a free lunch. This product will not only help struggling borrowers get a mortgage payment they can afford, but it will also punish them taking away their equity. It also allows banks to give struggling borrowers a reasonable payment and not take on too much risk themselves. The best part is it requires no government bailout or mass rate freezes.
What this will do is not artificially reduce rates and payments, but rather reduce rates and payments only along with the bank then sharing in future equity. This way banks aren't merely giving rates to borrowers that don't deserve them. Instead, the new lower rates are part of a scheme in which banks grab portions of future equity. This creates a balance of risk. Borrowers aren't rewarded for their irresponsibility but punished, and they also get a payment they can afford.
I knew at some point I would hear about a mortgage proposal that makes sense and I finally found one.
The shared appreciation concept is definitely the way to go to solve the current mortgage default and foreclosure crisis as a fair free market capitalism based solution. The politicians and the banks' management sooner or later will wake up to this point. However, the conventional SAM in its current form that has been around in countries like the UK for the last few decades may not be up to people's expectation. The improved version would.
ReplyDeleteThe new "economic renting" concept as facilitated by the SwapRent (SM) transaction and its embedded new mortgage product called Home Equity Locking Mortgage (HELM) are the results of over 6 years' research and development efforts. Put it simply, the patent pending HELM type of mortgage products is a wrap around package of a homeowner's existing first mortgage and a contingent second mortgage from the lender's point of view. The shared portion will automatically be reflected in a larger unpaid balance amount of the homeowner's mortgage in the future if the property indeed appreciates. Meanwhile, the homeowners will get enough current monthly payment subsidies to hold on to their homes. These new inventions were originally created as alternatives or improvements to the existing SAM or the current reverse mortgage products.
For the totally worked out solutions, please visit our web site at http://www.SwapRent.com . Thanks.
Ralph Liu
CEO, REIDeX, Inc.