From the investors’ perspective, they will be paying the 3% subsidy o the homeowners every year in exchange for the upside appreciation potential (and the downside depreciation risk at the same time). In the presentation slides the value used for Generic SwapRent (SM) rate (GSR) in a sample neighborhood is 2% with the mortgage funding cost (MFC) being 5% as a starting example. Each will be driven by supply and demand sentiments in their respective traded markets. So the subsidy is 3% every year for the homeowners to switch to economic renting as I mentioned. If the GSR trades up at 3% by supply and demand factors and the MFC remains unchanged then the annual subsidy will be 2% …. etc.
So the investment decision for investors is very simple. Using annual 3% subsidy as in the existing example, the cost for a 5-year SwapRent (SM) contract is 15% (or ~16% considering compounding), total subsidy for 5 years. If he/she thinks the potential appreciation will be higher then it is a good investment for him. For the 10 -year SwapRent (SM) contracts, he can compare the potential appreciation he feels and the cost of 10-year subsidy of ~30% etc.
The SwapRent (SM) based approach is a true capitalism solution to our current economic problems. No charity or spending taxpayers’ money necessary when it comes to rescuing anyone negatively involved in these subprime related problems currently.