By MoneySheep follow 2010 Nov 5, 3:23am 1,364 views 4 comments
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Now, this is Wall Street "creative finance".
All the regulars on Patrick.net know about these Mortgage Asset Backed Security. How about House Transfer Backed Security? Let us look at this scheme.
Freehold Capital Partners, the New York-based financial company is developing the program. In some new developments, homebuilders are including in contracts a 1% fee to be paid to them every time the house is sold -- for 99 years. And the money doesn't go for improvements or upkeep: It's just money in the builders' pockets. Freehold would bundle together the estimated income from the future fees and sell that package to investors. It claims this new "asset" would be worth about 5% of the original home prices. A housing developer said "I think it's a fantastic program, I can get my development going again."
Effectively this is how it works: A 1 percent “transfer fee” split between Freehold and the developer of your house every time it’s sold for the next 99 years. So if you sell your house for $300,000, you’ll owe $3,000. And if 20 years later it’s sold for $600,000, that seller will owe $6,000.
Charging you to sell your house for 99 years. One up on Wall Street.
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Systems designers seek to make modules independent of one another. Derivatives designers do not. This 1% fee is similar to the stamp tax San Francisco (county I think) charged me when I sold my place.
An important point is people are buying future equity but BOOKING THIS AS AN ASSET. A FUTURE equity is not an asset at nominal value (face value of the future). A PROMISE is not worth much. But, that's how you get to $100T's of derivatives or whatever it is now.
IMO, Derivatives is the new Internet. its the new bubble. Most people are not into it yet.
A transfer fee program is used to attract investors like banks, Wall Street or the U.S. Government. The investment dollars would fund construction projects throughout the country. A fully implemented transfer fee program could create up to five million jobs affecting all industries.
Contrary to the article, the developer does NOT receive any of the 1% fees - the investor does, ie. the banks, Wall Street or the U.S. Government.
In California, Mello Roos taxes can cost homeowners up to 1% PER YEAR, to pay for the same services provided by a transfer fee which could occur every 8 to 10 years over 99 years.
This sounds similar in concept to ground rent in Baltimore. Developers of yesteryear were able to sell row homes for less because they created these ground rent deeds. The developer would sell the house, but not the land. Eventually these ground rent deeds feel into the hands of endowments and other entities. These deeds are often open ended, some have existed for over 100 years.
This is old news. If I recall correctly, some areas are trying to make this illegal but in many places this is completely legal.