Securitization of the  Single-Family, Owner-Occupied  Home Equity Market John O’Brien Nelson Schneider Home Equity Securit...
The Potential <ul><li>The  U.S. housing market is around $20 trillion  —  even larger than the U.S. stock and bond markets...
Opportunity <ul><li>Provide new financing opportunities for homeowners and developers </li></ul><ul><li>Create a capital m...
Today’s Situation <ul><li>Home ownership is “all-or-nothing” </li></ul><ul><li>Financing is debt only; it’s as if equity-s...
How Did We Get Here? <ul><li>Home ownership traditionally has been a family affair, generally supported with debt  —  but ...
Alternative Solutions <ul><li>Alternative structure debt instruments </li></ul><ul><ul><li>Reverse Mortgages </li></ul></u...
What is a HEFI? <ul><li>Home-Equity, Fractional-Interest security </li></ul><ul><li>Stand-alone equity security, separate ...
Collateralized   Home   Obligations (CHOs) <ul><li>Offer diversified Single-Family, Owner-Occupied (SFOO) equity exposure ...
Benefits of HEFIs and CHOs <ul><li>Flexible financing/diversification for established homeowners </li></ul><ul><li>Market ...
Are Investors Ready for  HEFIs and CHOs? <ul><li>National and regional housing indices </li></ul><ul><li>Spot price proxie...
Fed Chairman Bernanke March 4, 2008 <ul><li>“ A recent estimate based on subprime mortgages foreclosed in the fourth quart...
Home Equity Securities LLC <ul><li>Attributes   </li></ul><ul><li>Developed the HEFI security and related methodologies </...
Home Equity Securities LLC <ul><li>Near Term Commercialization: </li></ul><ul><li>Adapted HEFI Program for Use in Subprime...
HES Subprime Workout Plan <ul><li>Reduce Mortgage Size to Meet Homeowner’s  Ability to Pay </li></ul><ul><li>Dollar Differ...
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HES presentation at ASF in Las Vegas

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This is the presentation the John O'Brien, Managing Partner at Home Equity Securities, gave at the American Securitization Forum in Las Vegas.

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  • Most of my changes were cosmetic. Among other things, I primarily reformatted the body text in an effort to make it more readable. I also switched the color of the bullets throughout. Please note that I created a footer on the “Master” slide and applied it (including company name, page, and date) to all the slides – except the Title Slide. I also changed Single-family, Owner-occupied to be two separated compound terms.
  • HES presentation at ASF in Las Vegas

    1. 1. Securitization of the Single-Family, Owner-Occupied Home Equity Market John O’Brien Nelson Schneider Home Equity Securities LLC March 2008
    2. 2. The Potential <ul><li>The U.S. housing market is around $20 trillion — even larger than the U.S. stock and bond markets </li></ul><ul><li>Institutions have had very limited access to this enormous equity market </li></ul><ul><li>Presently, homeowners access equity in their homes only through debt instruments </li></ul><ul><li>Development of an equity alternative is necessary to provide a logical supplement and support to debt-financing </li></ul>
    3. 3. Opportunity <ul><li>Provide new financing opportunities for homeowners and developers </li></ul><ul><li>Create a capital market for fractional-equity securities in single-family, owner-occupied residential real estate </li></ul><ul><li>Provide a new investment asset class for institutional asset managers and investors </li></ul><ul><li>Offer a solution to Subprime workouts </li></ul>
    4. 4. Today’s Situation <ul><li>Home ownership is “all-or-nothing” </li></ul><ul><li>Financing is debt only; it’s as if equity-share ownership hadn’t been invented </li></ul><ul><li>Home price valuation is without meaningful market discipline </li></ul><ul><li>Homeowner delinquency forces foreclosure; “downsizing in place” is not possible </li></ul>
    5. 5. How Did We Get Here? <ul><li>Home ownership traditionally has been a family affair, generally supported with debt — but rarely with a commercial equity investor </li></ul><ul><li>Not until recently — when consumer’s began to target home equity for wealth accumulation (accompanied by soaring debt loads) — has fractional home equity become an important option </li></ul>
    6. 6. Alternative Solutions <ul><li>Alternative structure debt instruments </li></ul><ul><ul><li>Reverse Mortgages </li></ul></ul><ul><li>Hybrid Structure/Asymmetric payoff instruments </li></ul><ul><ul><li>Shared Appreciation Mortgages </li></ul></ul><ul><li>Home-Equity, Fractional-Interest (HEFI) security – a standardized, stand alone, equity security innovation </li></ul>
    7. 7. What is a HEFI? <ul><li>Home-Equity, Fractional-Interest security </li></ul><ul><li>Stand-alone equity security, separate from mortgage </li></ul><ul><li>Allows homeowner to offer fractional ownership while retaining homeowner benefits </li></ul><ul><li>Offers investors passive equity investment in single-family, owner-occupied market </li></ul><ul><li>Facilitates fungibility, valuation, and transferability; can be pooled into Collateralized Home-Equity Obligations </li></ul>
    8. 8. Collateralized Home Obligations (CHOs) <ul><li>Offer diversified Single-Family, Owner-Occupied (SFOO) equity exposure </li></ul><ul><li>Could be traded OTC or on an exchange </li></ul><ul><li>Indexes of CHOs would allow price discovery </li></ul><ul><li>Derivatives on these Indexes allow hedging </li></ul>
    9. 9. Benefits of HEFIs and CHOs <ul><li>Flexible financing/diversification for established homeowners </li></ul><ul><li>Market expansion for developers and resale market </li></ul><ul><li>Foreclosure abatement for distressed homeowners </li></ul><ul><li>Recovery vehicle for mortgage restructuring </li></ul><ul><li>Investment opportunity for asset managers and institutional investors </li></ul>
    10. 10. Are Investors Ready for HEFIs and CHOs? <ul><li>National and regional housing indices </li></ul><ul><li>Spot price proxies </li></ul><ul><li>Listed futures and options </li></ul><ul><li>OTC products </li></ul>
    11. 11. Fed Chairman Bernanke March 4, 2008 <ul><li>“ A recent estimate based on subprime mortgages foreclosed in the fourth quarter of 2007 indicated that losses exceeded 50 percent of the principal balance… ” </li></ul><ul><li>“ The fact that many troubled borrowers have little or no equity suggests that greater use of principal write-downs or short payoffs, perhaps with shared appreciation features , would be in the best interests of both borrowers and lenders.” </li></ul>
    12. 12. Home Equity Securities LLC <ul><li>Attributes </li></ul><ul><li>Developed the HEFI security and related methodologies </li></ul><ul><li>Holds 7 enabling patent filings that underpin intellectual property </li></ul><ul><li>Uniquely positioned to support an accelerated commercial launch of the SFOO equity capital market </li></ul><ul><li>Boasts experienced team that combines professionals from Wall Street and academia </li></ul>
    13. 13. Home Equity Securities LLC <ul><li>Near Term Commercialization: </li></ul><ul><li>Adapted HEFI Program for Use in Subprime Workouts </li></ul><ul><li>Conferring with interested Federal, State and commercial entities intrigued by HES’s Model </li></ul><ul><li>Ready to License Out HES Program </li></ul>
    14. 14. HES Subprime Workout Plan <ul><li>Reduce Mortgage Size to Meet Homeowner’s Ability to Pay </li></ul><ul><li>Dollar Differential from Old Mortgage Converts to Equity Owned by Banker </li></ul><ul><li>Banker Now Has Performing Mortgage and Potential Upside if Home Price Rises </li></ul><ul><li>Homeowner Stays in Home </li></ul>

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