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A new way of looking at what it means to own a Home

Click for Executive Summary

If implemented, it would, for those families who have some reasonable income, halt in its tracks the current wave of foreclosures. Homeowners would remain homeowners, in a smaller home if necessary. If there were working members of a family, then my process could take people who have been the victims of foreclosures and put them back into homes. It is a free market approach that does not require cram downs, forced reductions of the value of mortgages (we let the market do that) bailouts or similar meddling in the market. Losses would be determined by the market, and would be absorbed by the current holders of the mortgages or related derivatives, or could be apportioned by negotiation between those currently living in the homes and the banks guided by the market.

My plan will also turn “toxic” paper, mostly in the form of mortgages, and mortgage backed securities into performing assets that accurately reflect current property values. It will not affect CDO's and derivatives that, as nearly as I can tell, were mostly illegal insurance contracts and a form of gambling. Thus, many but not the worst of the mortgage backed securities would now have well defined values. How that would happen is described at the end of the patent. Once the corporate structures are in place this will happen in a matter of days, weeks at the most. It may be possible to restore down payment equities that had been lost. The owner/occupants will experience some economic pain along with the banks. In addition, because of my new way of structuring mortgage (NOT The fancy BS that caused the current crisis), banks will have more liquidity, and it will be easier for people to buy homes which they will do by making real down payments. Leverage in mortgages will be severely limited, I.E. no zero down mortgages.

See How Homes Will Come to Resemble Prisons

If you want to comment, give feedback, or get involved then please contact me here.



A few notes on history – Just in case you are interested.

Fed Caused Great Depression And some commentary

They have been wrong, they are wrong, and they will be wrong

An analysis of Banking

Where we might be headed    Lead There by Bank Oligarchy


PATENT PENDING

Process for making small residential units easier and less expensive to own and transfer, thus ameliorating the current mortgage mortgage / foreclosure crisis and reduce risks using a form of transferable mortgage

This is a new way of buying, owning, transferring and residing in personal residential real estate. It relies on existing methods, some slightly modified, and arranged in a new way. This Patent restores the concept of home ownership to its original form of being almost entirely for the purpose of acquiring a place to live, and removes it as a form of short term investment or as a source of day to day money via Home Equity Lines of Credit (HELOCS). It also removes much of the element of financial risk, and many of the tax problems and and necessary tricks that arise when a person sells a house and moves to a new home.

My new way of real estate ownership, which I call RE-new can be accomplished either by private parties operating under existing law, or by changing the law to accommodate the new concepts, or by some combination of both methods. In either case, it will have to start out as private parties using my method.

To start with, remember that property ownership is an abstraction set into law defining rights and responsibilities among the parties. Those rights and responsibilities are whatever the relevant laws and contracts say that they are.

It is clearly impossible to describe all the ways that contractual agreements can be created to arrive at a given goal that is mutually agreed upon by the contracting parties. This patent covers the use of four items together to define a new way of owning and using property. Each of them has been used separately over the past 30+ years, perhaps under different names. It is the combination of the four of them into one unified method that makes this process unique.

There are four key parts to my method. Much of my patent relies upon private parties making contracts. This patent suggests how some parameters be set for those contracts. Should a contract be created that does not abide by those suggestions, that does not necessarily mean that this patent does not apply to the business practices engaged in by the contracting parties.



Part I. The Normalized Housing Unit.

There now exist futures contracts in housing. That is to say, that just as one can own rights to gold, or rights to oil via commodities markets, one can own rights to houses without actually owning a house. Unfortunately these contracts are out of the range of the average homeowner, let along the average person. The first part of my method is what I call a Normalized Housing Unit or an NHU. Its size will be some unit of area. Examples used in this application will use a size of one square foot, and will have a price as determined by the appropriate market, and will be available in either of three forms, national, regional or state. A contract for a NHU will specify what type it is, and when specifying a region, will describe the region which could be as large as several states, or as small as a zip code. NHU's will be fiduciary instruments like futures contracts. It is my recommendation that a federal law should be enacted that so that NHU's used to purchase property must be owned in their entirety. That is they will not be allowed to be leveraged or borrowed against. Until and unless such a law is passed, they will instruments issued by the PRP's, and by contract the total number of such instruments issued will match area of residential properties owned by a PRP (See II below). With regard to leverage, they may fall under the rules of stocks, where they can only be leveraged at 50%. The value of NHU's will be determined by how they trade on a commodities exchange or, if that is not available, by professional appraisals or some other agreeable method.



A contract between a owner and a PRP to occupy a house using NHUs should require that there be a mix of the three types of NHUs with the following suggested constrictions. At least 1/3 of the NHUs should be national, and no more than 40% should be regional. This will have the affect of minimizing the fluctuations of the “value” of a persons housing equity. As will be seen below, this equity is portable, and can not be obliterated by a decrease in house values.

The NHU, along with supplemental contracts for specific homes will replace the mortgage. This is spelled out below. A NHU has some of the properties of fractional real estate ownership



Part II. Pools of Real Properties or PRPs.

There will exist umbrella organizations that could be corporations or CO-OPs or non profits or something similar. The purpose of this umbrella organization is to acquire what I call a Pool or Real Properties and be responsible for them. Instead of a mortgage tied to a specific property that is owned by a specific legal person and a title to that property owned by the person, ownership will be split into two complementary parts belonging to two different entities. The two entities shall be the Umbrella Organization (UO) and the owner/user or owner/landlord . The UO will be simply a corporate entity that holds title to and globally manages a number of residential properties the PRP. The stock holders shall be, primarily, the owners of houses acquired with NHU's and other UO's. UO's will arrange for annual inspections of properties and for routine maintenance of such things as Pool Pumps, HVAC, septic tanks, Roofs, etc on those properties that are part of the PRP. UO's will share in the change of properties value with owners of properties, thus distributing and reducing short term risk, while allowing individuals to participate in the long term global appreciation of real estate.



Part III. A new form of title.

Title shall consist of a private form of Torrens title along with appropriate real covenants. As long as a given property stays with a given PRP, there will be no need for title searches, or title transfers. The specific rights and responsibilities that one normally thinks of as ownership, shall be spelled out in contracts between individuals who wish to 'own' the property, and a UO that controls the PRP. Covenants on the title will prohibit any PRP from placing any encumbrance upon such a property, or selling such a property without the explicit written consent of the owner.

If a person / owner needs to “encumber” some of their property, they may do so by moving some of their wholly owned NHUs back into the pool on which they are paying the mortgage.



Part IV A different form of mortgage.

The new form of mortgage will not be on the property, but rather on the NHU's required to be the equivalent in area of the home in which the mortgage payer will reside. As the mortgage is paid off, it will be by paying off and acquiring fully paid off NHU's so that the number of NHU's in the mortgage goes down, and they are all, essentially, leveraged near 100% This makes it easier to to make mortgages portable. See below. Since the mortgage is on financial instruments, (NHUs) it is easy to pick them up and move them to a new property when a person wishes to change his residence or vacation home.

Additional terms Unless otherwise stated, an Owner will be an individual using NHU's to reside in a property to which a PRP has conventional title. A PRP will be called a corporate owner.


Suggested Ideas for How The New System Works

People will be able to acquire Normalized Housing Units (NHUs) The NHU's will be able to be used to acquire and use living space in any house in a Pool of Real Property (PRP) in accordance with the rules and regulations of that Umbrella Organization (UO) that owns the PRP. How each UO structures its rules, and the relationships with other UO's will be up that Umbrella Organization. It will work like this.

A UO will manage its properties for the benefit of those who own them, and for the corporate stock holders. Each house will have associated with it shares of the particular UO to which it belongs. The owner of the house will also be a stock holder of UO that manages the PRP. The shares and ownership will be structured in such a way that home owners will own a minimum of at least 25% of the UO. Of course, the owners could own as much as all of the PRP.

There will be a minimum of how many NHU's a person needs to own in order to occupy a home in a PRP as an owner. The resident owner will then acquire a “mortgage” on the number of remaining NHU's that would be required to own the given house in full. This new mortgage will have some of the properties of a futures contract. That is, it will be an agreement to purchase a set number of NHU's for a fixed price. When a person buys a property in a PRP, his equity will increase as he acquires fully paid off NHU's NHU's can decrease in value, but because there is no leverage involved the decrease and increase is, essentially just at face value.

In addition there will be other costs that are associated with owning a house such as insurance and maintenance. Because of the size of the PRP it will be able to benefit from systematic scheduled maintenance and large scale purchasing of supplies and contracting.

The UO maintains a pool of approximately 10% of its PRP to be used for vacation homes or as rentals at below market rates, and possibly an additional second tier of reduced cost properties. This is how a reduced cost property functions. Some people are not that fussy about their residence. One home is pretty much like another. Other people want things just so. They simply must have more rooms rather than larger rooms or visa versa. Or they must have tile rather than carpet.

So, if you are willing to be a second tier owner, you can get a break on your costs by being willing to change homes with 60 days notice, or some other number determined by contract. Moving expenses will be paid for by some combination of the PRP and the party acquiring your home. You will not be expected to move more often than once ever (to be contractually determined)

If a person still can not find a suitable home in a PRP, then they can work with the UO to acquire or build a home and place it into the PRP and then make that their residence.



The greatest benefits for owners in this system are as follows:

  1. Minimized leverage of ownership. Thus a homeowners equity is protected. If they wish to have a leveraged investment, in housing then they can purchase NHU's on the commodities exchange, or housing options.

  2. If they need to move, they do not have to refinance. They simply take their NHU's at their current face value and go to a new house. They keep paying the mortgage on the NHU's they had promised to buy, and those NHU's move from the mortgage column to the paid column. If the value of the new home is different from that of the old home, than a cash settlement can be made for the difference, or the number of mortgage payments remaining can be adjusted, or other financial arrangements can be made. See attached for samples.

  3. Buying and selling costs are reduced. A nominal fee of maybe one percent is paid to do all the paper work, inspect and appraise the houses, and whatever else is deemed necessary. The owner moves out of house ONE which reverts to the PRP, and moves to house TWO. House TWO would be part of the rental or vacation home pool or inhabited by a second tier owner who would then move out. If the owner can not find a home to his liking, he will have the option of buying another home into the PRP, or of simply leaving the PRP pool as per contractual agreement.

  4. Known costs for high value items requiring repair and maintenance as well as reduced costs for insurance and distributed over time. Because a UO will be managing several hundreds of not thousands of units, they can arrange for scheduled inspections and routine maintenance and even replacement of high value items with known lifetimes. Because of economies of scale the costs associated with these necessary functions will be less when compared to those costs for current private home owners.

  5. They can also self insure. To encourage due care on the part of an owner, if a covered item fails after an owner has been at a property for six months, he will have to pay 10% of the cost of repair or replacement.

  6. In these times of financial crisis, the greatest benefit is this one. Suppose that a person suffers a financial reversal, and the value of their home has gone down. As long as they have some reasonable income, this is not a problem. The person simply moves to a smaller house, one that they can afford. Remember that the NHU's have not lost all their value, just gone down in value. But if they had 400 sq ft, of NHU and are in a 2000 sq foot home, they can move into a 1200 sq foot home and have a 33% ownership value, and start paying rent plus on the remaining 800 sq ft, Their payments will have gone down by ½ but their living space will only have gone down by 40%



Many people have lost hard earned down payments in the tens of thousands of dollars when they lost their homes to foreclosures. Others are about to loose those down payments. We are not addressing those who refinanced their homes, or purchased them with zero down. In order to give these victims of Wall Street incompetence the advantages of this system, new UO's (Umbrella Organizations) will be encouraged to share the leveraged appreciation of the properties that they buy with those who have been the victims of foreclosure, or are about to loose their homes to foreclosures. The purpose of this is to allow hard working families to regain lost investments. Banks will also be encouraged to offer better terms in such situations.

This saving the American Dream (STAD) program will benefit all concerned. An example is included

**********End of Provisional application for a Patent**********

Additional Notes

Sharia Law

This system can easily be made to conform to Sharia Law. That is, as far as the home owner is concerned there is no paying of interest on money that is lent. This is because NHU's are wholly owned. Rent is paid on that part of the house that is not owned. I am sure that the advantages of this are obvious.



Reducing Costs to the Economy

I n this article in “The Atlantic” on page 6 is the following statement: “The economist Andrew Oswald has demonstrated that in both the United States and Europe, those places with higher homeownership rates also suffer from higher unemployment. Homeownership, Oswald found, is a more important predictor of unemployment than rates of unionization or the generosity of welfare benefits. Too often, it ties people to declining or blighted locations, and forces them into work—if they can find it—that is a poor match for their interests and abilities.” But my system breaks the ties. “Owners” can move almost as easily as renters to locations where there is a better fit between their talents and a particular geographic area. See also this two page article in The Atlantic



Monetizing MBSes (Mortgage backed securities)

The statements below do NOT apply to a CDO of other than first level and CDS which were more like forms of gambling and some form of pyramid schemes. I make no claim that my system can turn lead into gold

A financial institution takes the properties that they have taken back after foreclosing on them. Then they create NHU's based only on the average value of properties in a region in which a property exists. The NHU's will be discounted based on the degree of property deterioration of foreclosed properties. The key here is that, whereas at one point there existed securities that were backed up by mortgages that had been sliced and diced, and because of the current situation the mortgages could really no longer be evaluated, and so the securities could not be evaluated, now we have securities made of pieces of paper (POPs) that each reflect several fractions of different houses of known square footage. Now it is easy to evaluate the total square footage represented by a POP that used to be a MBS. This total Square footage can now be evaluated via the NHU's. What was once a MBS of dubious value is now a contract for a commodity that can be, relatively easily, traded.

People with poor credit and little equity can move into a house and quickly change sweat for NHU's while paying to acquire NHU's

For example consider a package of MBS. Bank forecloses. The underlying mortgage becomes worthless. This lowers values of all other MBSes. Bank now has a property on its hands that starts to deteriorate by the day. How are the underlying MBS's to be valued? Assume that the bank has 10,000 homes at say 150,000 each. Why 150,000? No one knows. No one knows the value of the homes. But at an average of 2000 sq feet each, we know that the bank does have 20 million square feet of housing, and that these could be used to create 20 million Normalized Housing Units. If the bank were to give the 10,000 homeowners who had lost their homes 100 NHU's each for a value of say $1.00 then the bank would get a lot of good publicity. Now you have an instant market. You have a million NHU's on the market with people anxious to sell. Bargain hunters will be looking to buy cheap and sell for a higher price. After a week of trading, you probably have a fairly good idea as to what the rest of the 19 million NHU's are worth. Thus you have an idea of what the MBS's are worth.

And yes, I am aware that new laws may have be created to make this legal. In the meantime I suspect that some lawyer somewhere will be able to interpret existing laws in such a way as to make this legal. And since everyone benefits, it should work. Should anybody point out how “I do not know what I am doing”, well I would ask, where is your evidence that anyone on Wall Street or in DC knows more about what they are doing than I do? The ideas in this paper have the advantage of being fairly straightforward and grounded in reality as we know it. In fact, there is not a single idea in this paper that has not worked in other areas

Politicians Care? Yeah, right!!

At least two politicians had full access to this information back in October, and neither thought it was worthwhile. Either they did not understand it, or they did not see how it was helpful to themselves. Other politicians know about it, but also have shown no interest. If you want to get our country fixed, and think that this is a way to do it, you had best not expect any help from those who brought you the current mess. Lest you wonder who those are, it is most of the “experts” with “experience” within 50 miles of either NYC or Washington DC. So, it is up to you. contact me here Spread the word. Make noise, get involved and maybe Make Money.



Executive Summary

Property ownership is nothing more than a social convention of rights among various parties including the state. There is no necessity to tie a particular person to a particular piece of property and include a purchase agreement in that arrangement. Assume the existence of a pool of property managed or owned by some type of corporate entity. This corporate entity could be a co-op, a regular corporation, a LLC, or any other group of people as deemed appropriate. To be general, we call this an Umbrella Organization (UO) that manages the pool of real properties (PRP) Its purpose is primarily the management of the pool of the properties for the benefit of those who live in them --- users of property (UP). One can say that with regard to this enterprise, that there will be two classes of people. Corporate share holders, and property users or members. Quite often there will be a high degree of overlap between these two classes.

There will be several such corporate entities with cross agreements with each other so that members can use properties in multiple pools. Contracts will specify the relative rights and responsibilities of any given UO and a UP


Title to a specific property will reside with the UO, but by covenant the UO will not be able to encumber any property without approval of at least 60+(to be determined%) of both share holders and users of property. And by encumber I mean add to a mortgage. That is, the umbrella organization will likely have a mortgage on a property when it is purchased, but will only be able to pay it down, not to borrow against the land.

UP people acquire rights to use property and the amounts of those rights will determine how much a person as to pay to use a specific property. I call these rights Normalized Housing Units (NHU) and for now measure them in square feet. Clearly some properties have greater value than others so there will be positive or negative premiums on those properties. The idea is that for a typical property of say 2000 sq feet, if a person has 400 units, they will be able to live in any given property, and by contract pay a rental on the balance while acquiring additional rights. So this works like a mortgage, but a person can clearly move from one property to another taking the contract and their NHU's with them.

No more buying and selling and refinancing. Users of properties and shareholders all share in the global appreciation of the pool of property. Mobility is greatly enhanced so people can more easily move where their talents can best be used.

Further savings will be achieved by the UO globally managing maintenance of properties and benefiting from economies of scale in such maintenance.



Homes Becoming Prisons

Even after this wave of foreclosures is over, our culture and economy will start to resemble an economic LeBrae Tar Pit. People will be economic prisoners of their homes unable to relocate for better jobs or other reasons. Because they are upside down in their homes they will not be able to sell them unless they are able to pay off the balance of the mortgage. Then, if they move, they will have to come up with another down payment in order to get another home, and that assumes that their credit has not been compromised. Hundreds of thousands, if not millions of people will have become mired in a sort of economic prison created by their home. The American dream changed via economic alchemy, orchestrated by failed wall street financial institutions that got bailed out using homeowners tax dollars.

Does anybody think that this situation could be anything other than another anchor on the recovery. What happens to economic mobility if geographic mobility is severely compromised?



Here it is in table format

A new better and less expensive way to own your own home.


The standard home ownership situation



Advantages

Disadvantages

Rentals

Modifying Property

Within restrictions of Zoning and possible HOA and neighborhood restrictions you can do what you want with your home.

You are responsible for routine maintenance like painting landscaping etc as well as needed Major Repairs

Landlord usually pays for all of this, but determines the color, landscaping etc.

Maintenanceand repair

You control the types of items on your house, the quality of AC, the type of roof etc.

You get to pay for repair and replacement of all the things on the left.

Landlord pays for and determines the type of things installed, not necessarily in a timely manner.

Change of Value

You get the full value of the appreciation of that property

You get the full value of the depreciation of the value of the property

Landlord gets benefit or harm of all changes in value

Moving

If you want to move, you make arrangements and move where and when you want subject to constraints imposed by the marketplace and your personal financial situation.

When you move, you are responsible for selling, buying associated costs including refinancing. Figure 7 to 9 % of the cost of the property every time this happens

Your only constraints on moving are specified by the lease and what you can afford and what is available.

General Use and access

Within the limits of local and federal laws you have complete control of who has access to your property, what can be done with it and how it is used.


Landlord has a lot of control as to how the property can be used, and has some rights of access to the property.

Financing of Purchase

About 20% down, and a mortgage on the property for a period of time and a rate

Needs to be redone every time one moves. In times of down prices, may not be possible.



    My New System


Advantages

Disadvantages

Rental

Modifying Property

Within restrictions of Zoning and possible HOA and neighborhood restrictions you can do what you want with your home

NONE

NA or see above

Maintenanceor Repair

Owner takes care of minor stuff, major stuff is covered by the Umbrella Organization sometimes helped by a 10% contribution by the owner.

Few. The resident would need approval for major changes that would cost more than a given percentage of the value of the home.

NA or see above

Change of Value

Owner participates in the overall appreciation of the value of real estate. Does not risk being upside down in their house

Owner will not get the full benefits of a major runup in a local housing market.

NA or see above

Moving

A person gives notice to the UO of a desire to move to a different place. For a fee of one or two percent, they change their residence. They continue to pay on their contract. No need to sell or refinance

None

NA or see above

General Use and Access

Within the limits of local and federal laws you have complete control of who has access to your property, what can be done with it and how it is used.


NA or see above

Financing of Purchase

A person has “Rights to own/use property”, and a contract to acquire more at a specific cost over a specific period of time. Those rights go with the person within a pool of properties. So no refinancing is necessary

Does not get full value of runup in a particular property.



Why the new system is different


My new way of owning real estate is like a combination of the best features of a farmers co-op and a Real estate Investment Trust (REIT). A corporation manages a pool of real estate for the benefit of the owners of the real estate. To distinguish this from other corporations formed for other purposes, I want to call such entities using my system umbrella organizations (UO). The housing units may be stand alone houses or condos, or apartments. The owners of the UO will be share holders. Shareholders can be individuals, other UO's, and owners / users of the properties in the UO, or other entities. I will attempt to limit the licensing of my process in such a manner that at least of the shares shall be held by either other UO's or people living in the properties.

The new system will work in a fairly straightforward manner. The UO owns a pool of properties. That pool makes up a total of hundreds of thousands if not millions of square feet of property. A normalized housing unit is simply the average value of one square foot of property. Some properties will have a premium, some will be discounted because of where the property is or for other reasons. By contract a person will have NHU's based on the a mix of the average value of all properties, on the average value of properties in a particular area of UO, and some NHU's specific to a specific house.

Now think about home ownership for a minute. It is a contractual and legally binding agreement between at least two parties the “homeowner” and the state. Usually there is a third party, , the finance company in the form of a bank. My system introduces a fourth party, the UO whose purpose is to act as a facilitator and intermediary for the benefit of the homeowners and the banks. All transactions by the UO shall be posted to the Internet on a monthly basis. Except by a vote of a 2/3 majority of the stock holders, no encumbrances shall be added to the properties by the UO, and in no event shall such an encumbrance exceed 50% of the value of the properties except when the property is purchased.

This is how the 4th party changes the dynamics of how home ownership works.

  1. Because of its size, and structure and the openness of its books, it represents a safer creditor and can bet better loan rates.

  2. Because of its size, it can self insure, making insurance less expensive.

  3. At this point, note that both the individual homeowner and the UO share in the change of value of all residences as well as the individual residence in which a particular person lives. This shared interest colors the contractual arrangements made by the parties and motivates them to work for the good of both the UO and the individual homeowner.

  4. The UO will be responsible for routine large scale upkeep and maintenance of the properties with exceptions specified by contract for each individual homeowner. The UO will inspect, on an annual or semiannual basis, the roof, pool if there is one, relevant plumbing, HVAC and other large scale items together known as major infrastructure. As such items approach the end of their expected life, replacement shall be scheduled. In order to encourage appropriate care, the homeowner shall, except after the first six months of taking up residence in a new property that has a major infrastructure item older than half of its life expectancy, pay for 10% of the cost of replacing such an item.

  5. Recognizing that upgrades on MI can have benefits to all parties, a resident can negotiate to install higher quality MI at the time of replacement by paying for all or part of the additional cost and by getting in exchange additional Normalized Housing Units

  6. Because the UO benefits from economies of scale as do its contractors, these maintenance costs are significantly reduced. Contractors can schedule work, and do not require as much marketing and advertising. Costs of materials are less.

  7. A significant percentage of these reduced costs will show up on the bottom line of the UO and be passed on to the homeowners. Because of this a mortgage payment may be slightly higher than one would otherwise have, but one does not have to deal with repair bills that can average out to about a thousand dollars a year.

  8. A person acquires, not a contract to own a specific property, but rights to reside in a property. I call these rights normalized housing units which approximate square footage. To have ownership rights a person must have the equivalent of 20% of the rights of full ownership, viz. 400 NHU's for a 2000 square foot property assuming no premium or discount for that particular property. A person signs a contract to inhabit a property, pay rent on the rest, and also acquire additional NHU's such that over a period of, say, 20 years, they will have acquired enough NHU's to pay no rent, only maintenance costs.

  9. A person who can not afford to acquire enough NHU's to amount to 20% of the value of a property in which they wish to live may still reside in such properties and may do so with a contractual arrangement as follows. They may be either a regular renter, or a renter with option to purchase (ROP). In the second option, a person would be acquiring Normalized Housing Units. In both cases the renter would be paying below market rents, and in exchange would be subject to the following condition. They would be subject to a forced move if a homeowner wished to move into their property. They would be given at least 30 days notice. All moving expenses would be paid by the UO, and no more than one move would be required in any given year.