Fractional Homeownership May Be the Solution to the Foreclosure Problem

Posted on December 2nd, 2008 in Foreclosure

Since decreasing mortgage duties, approving incentive packages, purchasing toxic loan-supported securities and restricting foreclosure have not been effective in evening out the housing markets, a new intervention is in need.

Fractional homeownership works the same way as having a business partner or an investor. The homebuyer now does not have to pay for the heavy full amount of his dream house while keeping the material benefits of homeownership, meaning smaller loan amount and less chance of foreclosure. A standardized fractional ownership security makes an institutional investor a partner.

With this, traditional financing in home purchasing, which consist of the buyer?s capital plus the mortgage, will be changed. A passive investor who shares the gains and losses of home values also shares with the expenses. It makes homeownership somewhere between renting and owning. This decreases the possible mortgage thereby reducing the risk of foreclosure in the future.

A home equity fractional interest or HEFI security separates the consumption and investment choices. This means that the buyer will consume the whole worth of his purchase while he only paid for a part of it.

This intervention may temporarily solve foreclosure and stabilize home prices.

Foreclosure may be preventable with fractional ownership. With only a part of the supposed price of the home mortgage to pay, a manageable monthly payment makes foreclosure unlikely. There is no moral hazard involved since there is a HEFI. It is not an escape in paying, reduces the risk of losing the buyer?s money and is fair to on-time renters.

The HEFI security is like a stock share or an investment in a company.

Single family owner occupied equity asset class or SFOO is a large market. Investors would hold much of the SFOO equity asset as in the stocks. HEFIs can attract investors in this class of asset. This market reduces price ambiguity for price finding is already provided.

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