INVESTORS AND BORROWERS COULD SHARE COMMON INTERESTS AND SOLVE THE PROBLEM

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GET RID OF THE MIDDLEMEN

NOTE TO INVESTORS AND BORROWERS: IF YOU ARE SERIOUS ABOUT RESOLVING THE MORTGAGE CRISIS AND YOU WANT TO DO SOMETHING ABOUT IT WRITE TO ME AT neilfranklingarfield@gmail.com.

EDITOR’S NOTE: For those of you who have followed the blog from the beginning in 2007, you know that I have pounded on the idea that investors ans borrowers had a common interest and that if they got rid of the middlemen, they could work things out. It’s not that anyone would get a windfall, but everyone with a real interest in the property and the loan would be treated as fairly as possible. The method I suggested was equity sharing wherein the principal is corrected back down to 80% of current fair market value, the resulting balance is amortized over 30 years, with a reasonable rate that could be adjusted every seven years or so. For the investor, they would have a bottom established, and they would keep their claims against the investment bankers, and they would get a share in any increase in equity that could be split 50-50 for the investor or some other acceptable number.

So far I have received nothing but silence, but now someone from the real estate industry is proposing something that is close to what I have been saying and it appeared in the New York Times which means that a lot of people have seen it. See article below. So I decided to try this experiment.

If you are an investor who would wants to pursue this further, then write to me and tell me so at

neilfranklingarfield@gmail.com

If you are a borrower who would like to explore this option then write to me and tell me so at

neilfranklingarfield@gmail.com

Let’s see what happens.

By ALEX PERRIELLO

THREE years after the mortgage crisis began, there are still 11 million to 15 million homeowners who owe more than their home is worth, meaning that about 25 percent of all mortgage holders are underwater. As a result, foreclosures continue to mount; many homeowners can’t make their payments and are tempted to simply walk away from their debt. Meanwhile, the lenders and investors who own the loans are unwilling to work out a deal if, as is usually the case, it means losing money.

Fortunately, there is a solution. Rather than be at odds, homeowners and investors should partner in long-term equity-sharing arrangements.

Here’s how it would work. Let’s say a homeowner purchased a house in 2004 for $300,000 with no money down, and the property is now worth $150,000 — a 50 percent drop in value.

In an equity-sharing arrangement, the lender would write a new loan for $150,000, retire the original $300,000 loan and, to make up for that loss, take a 50 percent deeded ownership interest in the property. The homeowner would also agree to split 50 percent of the net proceeds of any future sale of the property with the lender. The new arrangement would also include a buyout provision, so that if the homeowner ever wanted to take over the lender’s share, he would simply pay the lender a predetermined amount of cash.

Such a plan would be relatively easy to put in place, assuming the lender held the loan in its own portfolio. In most cases, however, lenders immediately sold their loans to investors and merely performed loan-servicing duties like collecting monthly payments and sending statements.

In those instances, the lender would have already made its money when the loan was originated, the proceeds from the new loan and the 50 percent deeded interest in the property would go to the investor, not the lender. The investor would also benefit from any future sale or when the homeowner exercised the buyout provision.

Equity-sharing would be a boon for everyone involved. Homeowners could stay in their houses and preserve their credit (assuming they stay current on the new loan). The neighborhood would avoid a foreclosure, which can depress property values. And the lender or investor could participate in the upside potential when the house eventually sells. Best of all, it wouldn’t cost taxpayers a dime.

A major reason the mortgage mess has gone on so long is that homeowners, lenders and investors assume their interests are at odds. An equity-sharing arrangement would bring all three onto the same side — and help solve America’s foreclosure crisis.

Tags: disclosure, HERS, investors, modification, mortgage backed securities, mortgage meltdown, securitization
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