In light of the recent conference on the future of housing finance on August 17th, it may be pertinent to explain again how the FARJHO services offered at our subsidiary InvestorsAlly, Inc. as an alternative home ownership structure could be used as a free market based replacement solution to Fannie and Freddie. It may just be the Werner Sombart’s “creative destruction” concept that the legendary Austrian economist Joseph Schumpeter referred to in his “Capitalism, Socialism and Democracy” back in 1942.
Practically in the current market, these new FARJHO services could also present a great way for fixer-upper or distressed real estate investors/flippers in either a REIT or a private equity real estate fund to have a quicker exit strategy by offering a genuine housing affordability to homeowners. We have been busy preparing for the official launch to introduce these free market based services to aspiring home owners and prospective joint property investors in California.
The simple way to describe the business model for InvestorsAlly is an Internet-based peer-to-peer marketplace for aspiring home owners and would-be property investors to meet and negotiate, combined with conventional real estate franchisee brokerage offices across the country. Although it has an Internet based operation for gathering and capturing investors, the actual operations of the property transactions for homeowners will be done by the local franchisee agents across the country in shopping centers or office complexes in each city to help conclude these all equity deals to buy homes.
Most of the participants of the conference on the 17th such as Bill Gross, Timothy Geithner, Shaun Donovan, Michael Stegman, Ingrid Gould Ellen, Lew Ranieri, Barbara J. Desoer, Mike Heid, S. A. Ibrahim, Alex Pollock, Mark Zandi, many other Congressional staff, Fed, Treasury Dept, FDIC, HUD officials as well as their staff members have all reviewed SwapRent related ideas as an alternative housing finance system through the years since as early as 2006. When asked about the status, many of them explained that they are still studying it. It would be interesting to observe when they may finally take a stand on these innovative proposals in public.
From an economist’s perspective, it may behoove them to review again how central banks and governments could use SwapRent as the third alternative economic policy management tool, in addition to the conventional monetary and fiscal policies in order to finally be able to de-leverage and stimulate at the same time. These new concepts have also been explained in details in the SwapRent article that I have published in the Journal of Housing Finance International of the International Union of Housing Finance in December 2009.
It should be made known that as a private company, we do not need any specific favors or assistance from the federal, state, county or city governments but hopefully those officials could see that this 100% pure free market based alternative home ownership solution could indeed help the local residents and boost the local economy. As public elected officials this new development could indeed help them advance their political careers if they could help champion this good cause for our country and give those people who elected them what they deserve and need.
If the politicians would like to pro-actively make a difference, the state, county (and city) public employees and teachers pension funds could be made the best candidates to become the anchor local institutional property investors to help home owners to co-own homes either through the new FARJHO structure or through the more sophisticated SwapRent transactions in order to foster local economic revivals and to ensure their continuing prosperity.
The pension funds could of course resell those FARJHO LLC member interests or the SwapRent contracts to other free market based investors both here and abroad at any time in order to regenerate and scale up the scope of available capital. Attracting fresh capital from around the world this way to local communities could certainly help the state, county and city governments fix their current budget deficits under a free market mechanism. In addition, they may also help our federal government get out of its own debt problems.
Policy-wise, the simple new economic concept again is that people would need to start thinking outside the box, borrowing money to own homes should not be the only way to own homes. Promoting home ownership for social good purposes could also be accomplished through partial equity sharing, just like how corporate ownership has evolved in the last few centuries with the development of a stock market in each country. It is about time that we should seriously treat equity financing and developing a tradable secondary market of home equities as a viable way to promote home ownership.
In addition, as mentioned before, with the introduction of the separation of shelter value from the economic value (or usufruct value from the investment value) of owning a real estate property by the new SwapRent related methodologies and its secondary market REIDeX, boom and bust cycles created by the investment value of properties and exacerbated by the abuse of lending/borrowing could easily be avoided and home owners could get to enjoy the social stability as long as they decide to stick to the shelter value part of their home ownership and only participate in the investment value of owning a property in a rational and prudent way.