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Paul

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Reply with quote  #1 
Here's a different way for homeowners to raise funds. It's not a refi, not a HELOC, not a reverse mortgage – it's selling a claim to future appreciation. 

https://point.com/




rickencin

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Reply with quote  #2 
I didn't read the article because I don't need to be put on more mailing lists.  This actually makes sense for those of us who buy in CA for the appreciation.  There is an obvious unintended consequence once the house reaches the strike price.  The owners won't bother to do any maintenance.  If they spend thousands of dollars they won't get one more penny back, just their guaranteed price.  Kind of like tenants with bad credit ratings.  An interesting question is how much equity stake would keep them motivated to keep the house nice?  50? 25%? 12.5?
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Rick
Paul

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Reply with quote  #3 
Quote:
Originally Posted by rickencin
I didn't read the article because I don't need to be put on more mailing lists.  This actually makes sense for those of us who buy in CA for the appreciation.  There is an obvious unintended consequence once the house reaches the strike price.  The owners won't bother to do any maintenance.  If they spend thousands of dollars they won't get one more penny back, just their guaranteed price.  Kind of like tenants with bad credit ratings.  An interesting question is how much equity stake would keep them motivated to keep the house nice?  50? 25%? 12.5?


Point.com buys a maximum of 30% of the equity.
larrywww

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Reply with quote  #4 
It's an interesting concept.   According to the review by the Washington Post, a shared appreciation type mortgage hasn't been around since the 1980s.

It's also clever---a hard money loan disguised as a wager about value.  And they arguably don't violate the "ability to pay" rules since the borrower only pays up if the house appreciates---and he's able to pay it back.

Although they lose in the event the house depreciates, this has the following caveat:

"Then there’s the upfront “risk adjustment” factor that is applied to the initial appraisal. In the case of the $630,000 house above, the adjustment downward is 15 percent, reducing your house’s value for the purposes of Point’s computation of appreciation to $535,500. The adjustment has the effect of increasing the payout to Point’s investors significantly. It also protects them in the event of property depreciation: In the $630,000 example, Point doesn’t start sharing in your losses until the house’s value drops below the “risk-adjusted” $535,000."

So the lender only loses if the house has already lost the 15% cushion off its appraised value---which reduces the probability of that outcome.

Given all the restrictions that Dodd Frank has put on harvesting this type of equity, this seems to me like a clever end run around such restrictions.

As I understand it, they have rolled out in California, Washington and some high priced Eastern states---which also increases the likelihood they won't lose money---though there is a theoretical downside risk.

In theory, it might help the consumer out if they have high priced credit card or other debt to pay down---though, in my experience, usually it's the clueless borrowers who take this type of risk.

I haven't drilled down in terms of what kind of deal they are offereing.  But it's an interesting idea----and my guess is that they will succeed with this.  Once the average consumer hears there will be no monthly payments---they will think it's the greatest thing since sliced bread.

Bruce predicted that lenders would loosen up their underwriting criteria, although the requirements of Dodd Frank (and the doomsday sanction that the lender might be forced to buy back the loan) have largely interfered with the free market.

The truth is that the lending world has helped out so little during this cycle.  Probably only after the repeal of Dodd Frank are we likely to see any real loosening that would help investors---and who knows if this will happen?

In his latest podcast Bruce mentions that he (again!) went before Fannie Mae and asked them to fund loans for investors----and to loosen the # of properties an investor can buy.   Although this would be great if it happened, I really wouldn't hold my breath waiting for that.

There were time frames during this last runup when investors would have killed for more flexible lending.
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