The licensed SwapRent (SM) embedded mortgage product HELM or FVCM from the financial institution providers’ perspective is a wrap-around package of a contingent 2nd mortgage (not exactly a HELOC as the pricing method should be totally different from traditional HELOC) and the original 1st mortgage which could have already been sold or securitized that the lending bank is still servicing. The only situation there would be a pay-down of the principal of the original 1st mortgage is when the property value declines as measured by the index used at the end of a SwapRent (SM) contract. There is no restriction what-so-ever currently in any of the mortgages which had already been sold and securitized to receive the pay-down of principal. If the property values goes up at the end of the SwapRent (SM) contract then there is nothing needs to be done with the original 1st mortgage that they have been servicing. Therefore it does not matter if the original mortgage loans had already been sold and securitized to implement HELM or FVCM.
This is also why and how the implementation of SwapRent (SM) and its embedded new mortgage products with the original existing lenders could save the current distressed ABS, RMBS or CDO investors around the world and stop the subprime or Alt A contagion from spreading further into the entire global credit markets.