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Saving The Mortgage Market and Dealing With Abandoned Homes
 

Saving The Mortgage Market and Dealing With Abandoned Homes

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How to save the market without spending the 700 billion dollars using an equity guarantee approach. This presentation describes a way to assure that thousands of abandoned homes and neighborhoods are ...

How to save the market without spending the 700 billion dollars using an equity guarantee approach. This presentation describes a way to assure that thousands of abandoned homes and neighborhoods are reclaimed and renewed.

Back in 1979 my graduate project partner Lale Guneysu and I were asked to come up with a program response to deal with thousands upon thousands of abandoned homes and damaged neighborhoods. This approach used new computer modeling techniques at the time which are commonm today. Take a look!

Tom Curtin

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    Saving The Mortgage Market and Dealing With Abandoned Homes Saving The Mortgage Market and Dealing With Abandoned Homes Presentation Transcript

    • Applying  the Equity Guarantee Model  to Resolve Today’s Crisis
    • In 1979, Lale Guneysu and Thomas Curtin, graduate  l d h d students at the University of Rochester’s Public  Policy School were asked by the Urban League to  apply their skills to resolve a housing abandonment  crisis in the City of Rochester NY  where some  y thousands of homes lay vacant. This presentation tells how that solution can be  applied today to stabilize housing markets  without  actually purchasing the securities. act all  p rchasing the sec rities
    • Too many houses, too few buyers, thousands  f of abandoned homes in the City of Rochester  NY, with blighted neighborhoods and a  h bl h d hb h d d declining tax base. Growing suburbs with increasing home  values and pockets of new regeneration in  l d k f the city.
    • Use modern econometric assessment models to fix  d d l f each homes value based on the common measures  of value (square footage  bedrooms  baths   of value (square footage, bedrooms, baths,  construction, etc and location can account for most  of the resale price of a home). p ) $100,000
    • Run a second valuation report that estimates  d l h market price today but without the LOCATION  indicator.   indicator    That creates two values, a real market price (RMP)  and an estimated value without the impact of  p LOCATION (EGV).   RMP     $100,000 EGV       $200,000
    • Issue an Equity Guarantee to each owner  which assures that after Five years the  agency will pay them the difference between  ll h h d ff b the EGV and the prevailing market value five  years later provided: l d d ▪ The property is owner occupied ▪ The property is kept up to the International Property  h k h l Maintenance Code Standards. ▪ All taxes have been paid
    • YEAR #1 YEAR #3 3 RMP     $100,000 RMP     $150,000 EGV  $200,000 EGV  $200,000 RMP     $200,000 +/‐ EGV  $200 000 $200,000 YEAR #5
    • Location –or the socio‐economic effect of  ff f neighborhood sets the value for many homes ‐But whenever that value of something is  guaranteed or bonded by the government, it  d b d db h tends to float with a market. The closer you get to the redemption date,  the higher the market for the item. h h h h k f h
    • Technically, the risk was large, say $50k in average   h ll h k l k guarantees for 10,000 homes would be $500  MILLION DOLLARS.  Technically, the paper money  MILLION DOLLARS   Technically  the paper money  in your wallet is worth next to nothing. Practically speaking, things are worth what the  government says they are worth and as long as  things are staggered to smooth out market effects it  rolls along nicely.
    • Property is maintained Enhancing Values P  i   i i d E h i  V l Property is occupied reducing neighborhood decline Local Government is getting tax revenue crucial to  providing services needed to improve conditions in the  d d d d h neighborhood.
    • Today s problem is less about urban or suburban  Today’s problem is less about urban or suburban  blight, though it could be if we don’t fix this mess… It s about TIME  It’s about TIME  or a bubble market. Using the Equity Guarantee modeling approach, we  add a new term to the value estimation, Time, and  add a new term to the value estimation  Time  and  adjust the “wayback machine” to when we want the  value and guarantee that applying the usual equity  guarantee rule, perhaps stipulating an interest rate  guarantee rule  perhaps stipulating an interest rate  and payments for the loan.
    • Additional Adjustments Additi l Adj t t Potentially we d need to factor in the opportunity cost  Potentially we’d need to factor in the opportunity cost  or value of money to assure the flow, but the interest  rate term could handle that. It’s possible that we don’t want some markets to  return to 100% of their heyday.  We may want to  return to 100% of their heyday   We may want to  subsidize overheated markets to keep median prices  at a level consistent with people’s ability to pay in the  long term adjusting for inflation. l  t   dj ti  f  i fl ti
    • Tom Curtin  tcurtin@comcast.net Vice President of  d f Borough Council –Parkesburg PA Senior Enterprise Architect,  Senior Enterprise Architect   Large Healthcare Insurer  Philadelphia p