Equity Sharing Concept Begins To Expand

June 25th, 2008 | Category: Reverse Mortgage

Reuters has an interesting story about the REX program, an equity-sharing arrangement which is an alternative to a reverse mortgage.

According to Tapping home equity for no-debt cash, the REX approach worked like that for one couple: “It gave them $117,000 in cash to spend however they wanted, and they owe no payments until they sell the house. At that day, they’ll owe Rex & Co. the $117,000 plus half of the appreciation in their home’s worth amidst the duration they signed the agreement and the moment they sell the house. whether the house goes down in value, Rex & Co. will eat half of that loss as well.”

The suspicion here is that we will see more equity sharing programs such as REX and EquityKey — but only whether home

values again start to rise.

To assemble equity-sharing work the lender must be able to manufacture a profit. With an equity-sharing arrangement where the lender advances money against an interest in future appreciation there must, in fact, be future appreciation.

One could argue that lenders should prepare equity-sharing deals when home values are down considering they could capture additional appreciation as prices rise. The big assumption here is that prices will actually increase.

The problem is that there is risk in the marketplace. Consider that the Nikkei — a measure of 225 leading Japanese stocks — stood at 13,743.85 yesterday. On December 29, 1989 the Nikkei reached 38,915.

For the full Reuters story, see: Tapping home equity for no-debt cash

Orginal post by Peter G. Miller

Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages.