Equity Stake Funding

A new mortgage product (not available yet) that values the lein on the property as a percent of the assessed valuation instead of a fixed dollar amount. There are no mortgage payments with an Equity Stake Mortgage. Similar requirements to a Reverse Mortgage without the age restriction. Swapping equity in your home for bonds or preferred stock in an ESIT (Equity Stake Investment Trust) is an effective way to insure, diversify, and/or liquify the asset value of your home.

Location: Southern California, United States

Wednesday, February 08, 2006

An Equity-Stake Mortgage is a no-payment alternative to standard mortgages.

The vehicle for Equity Stake Funding is an ESIT, (Equity Stake Investment Trust), similar to a REIT (Real Estate Investment Trust) or a TIC (Tenancy in Common) , but holding only mortgage type recorded liens as opposed to taking title to the property.

This is distinct from 'Shared Equity Mortgages' or 'Shared Appreciation Mortgages' which are still regular mortgages.

There are two salient features of an Equity Stake Funding:
1)The title holder exchanges a portion of their real estate equity, as a non-cash Transaction, for stock equity in the ESIT whose only assets are equity liens.
2) The Equity is held, by the ESIT, as a percent of the assessed value of the real estate.

Specific ESIT advantages are:
-There is no DTI (Debt to Income Ratio) with an ESIT.
-There is no debt servicing overhead, since there is no debt.
-Specifically, Equity Staking has no-payments.
-Origination fees and procedures remain unchanged.
-Insurance, via diversification, is an artifactual byproduct of Equity Staking .
-Anyone can buy/sell the ESIT stock on the open market.
-The title holder can undo (buy back) their Equity Stake from the ESIT with cash, which cash is used by the ESIT exclusively for the repurchase of its own stock on the open market.
-Low cost housing prices remain at market value, so there is no artificial market.

ESIT operating expenses can be funded by a foundation, if the ESIT is a 501(c)3 corporation. Which raises an interesting prospect, a Publicly Traded Non-Profit Corporation. There currently are none that I know of (Co-ops?). Fannie Mae and Freddie Mac are Privately Owned Publically Chartered corporations. If assets are sufficiently large >$500M, a low cost fee of <0.2% of the assets under management, can be implemented. Making the ESIT completely self sufficient.

To prevent abuse, preconditions for Staking Out Equity (to an ESIT) are similar to taking a regular mortgage. These requirements include: principle residence, maintain property, pay property taxes, <80% STV (Stake to Value), etc.

Thursday, December 01, 2005

There are some interesting ramifications to diversifying your home equity with an ESIT. If your home burns down your equity in the ESIT remains because 1,000s of individual homes are equity staked; the risk is spread over a large base.

The Chicago Mercantile Exchange started trading home price futures and options in April 2006 for 10 cities across the USA; Boston, NY, Wash. DC, Miami, Chicago, Denver, SF, Las Vegas, LA, & San Diego.