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FARJHO by Ralph Liu 1210 2011

FARJHO by Ralph Liu 1210 2011

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Original FARJHO Creation Paper - Historical Development Process Since 2001
Original FARJHO Creation Paper - Historical Development Process Since 2001

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Published by: Ralph Y. Liu, 刘冶民 on Jul 31, 2012
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com 23 Corporate Plaza Drive, Suite 133 Newport Beach, CA 92660 Tel: (888) 456-8881, (949) 371-9139, Fax: (888) 315-3831 http://www.farjho.com farjho@gmail.com

FARJHOSM – A new home ownership structure and innovation in housing finance that could eliminate home foreclosures all together
Since my last article on SwapRent , HELM (Home Equity Locking Mortgage) and FARM (Flexible And Reversible Mortgage) published in the December 2009 issue of the Housing Finance International, there have been many further developments both in terms of academic research to solidify them as a new alternative housing finance system and the commercialization of some these new inventions in the real world. Notably, the spin-off of a new home ownership SM structure called FARJHO (Flexible And Reversible Joint Home Ownership) from the original FARM (Flexible And Reversible Mortgage) concept has generated most interest from the home owners in the US. Here below is a chart that illustrates the historical development process of SwapRent , SM FARJHO and their associated concepts and products within the past decade until today.

In addition, the development of a new concept of a real estate based national foreign exchange valuation and pegging system called TARELV (Total Aggregate Real Estate and Land Value)


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Currencies has gathered some momentum in the academic world since recent events in the global financial markets have made the Fiat Currency related Chartalism concepts closer to their testing point and the awareness of the need of alternatives for their replacements have grown in a very fast pace within the past few years. Furthermore, there has also been more traction among academics in terms of the new application SM of SwapRent transactions as a new alternative economic policy management tool. These two latter subjects will be discussed in another following-up article. In this article I will focus SM on introducing the new home ownership structure of FARJHO and our implementation efforts SM on a US version of FARJHO to date in the American housing market on both a commercial basis at http://www.farjho.com managed by InvestorsAlly, Inc. as well as the educational efforts on a not-for-profit basis to help the low income working families with increased genuine housing affordability at PeoplesAlly Foundation (http://www.peoplesally.org).

(More detailed text for creating Chart 1)

Historical Time Line of the Development of SwapRentSM, FARJHOSM and TARELV
• 2001 - 2004 Launched the first real estate index derivatives exchange in Los Angeles, the REIFO (Real Estate Index Futures and Options) Exchange, base on city based property indices. • 2004 - 2006 Introduced the first RMB (CNY) Interest Rate Swap in the Chinese inter-bank market in Beijing and created the first long term fixed rate mortgage for home owners in China as well as the corporate fixed rate loans to corporate borrowers. • 2006 Researched the historical methods and applications of the property equity sharing SM concept in various consumer markets and created property derivatives based SwapRent , its embedded mortgage products, HELM, PELM, FVCM, embedded structured deposits, REILD, PILN, new indexing method SPIM and trading marketplace REIDeX. Filed patents in major countries. • 2007 Worked with banks on these new SwapRent applications in the UK, Australia, Hong Kong, Singapore as well as Wall Street firms and banks in the US. Campaigned to the Congressional staff, Federal government agencies, HUD, GSEs, Treasury Department and the SM Federal Reserve on considering using SwapRent as a new alternative economic policy management tool. • 2008 Explored municipal applications of SwapRent with State, County and City governments as well as local housing authorities and housing finance agencies across the US. Set up REIDeX, SM Inc. in Los Angeles as the online marketplace for trading city index-based SwapRent contracts. • 2009 Explored Islamic finance applications of SwapRent and the SwapRent embedded FARM (Flexible And Reversible Mortgage) with central banks and other major financial institutions


FARJHO.com 23 Corporate Plaza Drive, Suite 133 Newport Beach, CA 92660 Tel: (888) 456-8881, (949) 371-9139, Fax: (888) 315-3831 http://www.farjho.com farjho@gmail.com

in the Gulf Region of the Middle East. Worked with Islamic finance scholars on making SM SwapRent and FARM Sharia compliant. • 2010 Farmed out the FARJHO structure away from SwapRent embedded FARM and set up InvestorsAlly, Inc. in Newport Beach as a separate corporate entity to focus on introducing SM FARJHO only for easier mass market commercialization. Launched the Internet portal http://www.farjho.com as a dedicated consumer Internet based peer-to-peer online matching service between aspiring home owners and prospective joint property investors. Introduced the new TARELV (Total Aggregate Real Estate and Land Value) currency concept as a new exchange rate pegging system alternative to the current Chartalism based Fiat currencies. • 2011 Launched the non-profit PeoplesAlly Foundation in Newport Beach to assist low income working families in the US with increased housing affordability without relying on tax payer's SM SM monetary subsidy through the educational work on how to use FARJHO and SwapRent on a pure free market basis to flexibly and reversibly accomplish the portable housing affordability through separating the investment value away from the sheltering purpose of owning a home real estate property.

1. FARJHOSM and the “corporatization” of American homes – yes, but only one home at a time and no “corporate debt financing” necessary
FARJHO (Flexible And Reversible Joint Home Ownership) is a new home ownership structure and business method based on the conventional equity sharing concepts that many housing SM professionals are already very familiar with. However, FARJHO comes with many new additional innovative concepts. FARJHO was originally developed in 2009 as an off-shoot of the over 10-year research efforts SM on SwapRent related property derivatives research that started back in 2001 as well as an earlier real estate derivatives trading exchange venture (REIFO Exchange) launched in 2002 (Ref 1). The goal was to make it simple so that there could be easier and wider immediate consumer acceptance. It was specifically designed to be not related to any form of financial derivatives. It is not even a mortgage, just a new plain equity based joint home ownership structure without the reliance of the use of any debt in its most generic base version. Therefore regulatory compliance has become very simple. The very obvious immediate economic and social benefits are enhanced housing affordability, neighborhood stability and social harmony. As a result, these new home ownership structure and alternatives housing finance system are better viewed as both a form of social innovations for the masses rather than simply a form of financial innovations alone for investors to potentially make more profits. Readers may recall from the original article published in the December 2009 issue of HFI (Ref 2) SM that SwapRent is a temporary own-rent switching mechanism that could provide the property owners with an opportunity to exchange a portion of the future price appreciation potential on


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their properties for receiving a series current cash flow payment commitment for a period of time from a free market based investor on an open exchange or a peer-to-peer Internet portal such as SM REIDeX.com. While the cash flow sharing based SwapRent may be a bit ahead of its time SM since its creation in 2006 due to its relative complexity, the new equity sharing based FARJHO transaction has indeed found over-whelming consumer demand so far from our over one year's test marketing efforts primarily due to its simplicity. If it takes off in a major way, it could accomplish the goal to finally create a liquid equity market for homes, just as there have been liquid stock markets for major big businesses in many countries since over 300 years ago already. That means that going forward in the future, borrowing using the entire property as collateral will no longer be the only way for people to own homes. The term "foreclosure" may even become SM obsolete when people started to apply borrowing only under the FARJHO proposed concepts, i.e. borrowing only at the member level instead of at the property level. When lesser credit-worthy aspiring home owners have resorted to these new equity financing methods, what is left for the banks to lend to in terms of conventional home mortgages will be better credit quality home buyers/borrowers. More free market based consumer choices will always be a win-win situation for everyone under uninhibited capitalism. Since using the equity sharing concept to own homes is not new and there have been many other methods such as SEM (Shared Equity Mortgage), SAM (Shared Appreciation Mortgage), Shared Ownership Scheme, Land Trust, etc. that have been practiced in many countries such as the UK, SM the US and Australia, FARJHO represents one of the latest methods in a long evolutionary process of this simple economic concept. Social sciences evolve just like how the technology world does. Although the concept of a mobile phone has been around for quite some time, the actual business method developed to implement the concept has improved from a Motorola platform shoe sized cell phone used by Gordon Gekko SM in the movie Wall Street to the latest iPhone 4S introduced in 2011. So is FARJHO as a new business method compared with many other previous shared equity schemes or shared ownership methods to own homes using the old simple equity sharing concept. The distinguishing features of FARJHO

as a new business method are three fold:

First, FARJHO allows home occupiers and property investors to own only one home at a time in order to maintain the sanctity and the freedom of the single family residence ownership. This is in sharp contrast to many community oriented equity sharing methods of Co-ops, Land Trusts, Kibbutz or Commune types of older equity sharing methods. Second, as a brand new concept, FARJHO only allows member level debt financing, to eliminate the foreclosure possibility which exists with conventional property level debt financing such as those in a SEM, a SAM or a Shared Ownership type of other existing equity sharing schemes. Home occupiers could still get foreclosed when they lose their monthly income capability under those older arrangements.


FARJHO.com 23 Corporate Plaza Drive, Suite 133 Newport Beach, CA 92660 Tel: (888) 456-8881, (949) 371-9139, Fax: (888) 315-3831 http://www.farjho.com farjho@gmail.com

Third, FARJHO provides a natural built-in buffer to conventional renting to avoid potential eviction when the tenants temporarily lose their monthly income capability. The equity stake of the renter/co-owner of the FARJHO structure could act as an optional voluntary collateral against missed monthly rent payments and therefore provides property investors with enhanced investment security through less credit risks and at the same time provides the tenants/co-owners with more home occupying stability during the rainy days in their working lives. All these new features were specifically designed to make the new home ownership structure of SM FARJHO more than simply an attractive financial investment vehicle for property investors. Among its main goals is to also provide neighborhood stability and social harmony by eliminating the possibility of foreclosures and reducing the likelihood of eviction for home occupiers. These features will be examined in more details in the following sections.


2. What Is A Basic FARJHOSM Structure?
(Flexible And Reversible Joint Home Ownership) is a real home ownership service provided by Newport Beach, California based InvestorsAlly, Inc. and its non-profit affiliate PeoplesAlly Foundation through the Internet portal site http://www.farjho.com. As mentioned earlier, FARJHOSM is an offshoot from the R&D work on SwapRentSM embedded FARM (Flexible And Reversible Mortgage) product. The new name reflects the fact that SM FARJHO is meant to be a new way of home ownership structure that uses all possible financing methods in an innovative way, either equity or debt, not just another mortgage product that relies only on debt.

At the present time, there are many opportunities for investors who are positive about the long term eventual recovery of the US real estate market to invest for the long term in foreclosed or distressed single family residences in many worst hit neighborhoods in the US such as California, Nevada, Arizona and Florida. FARJHOSM was created as a new improved way of shared equity based home ownership to allow institutional money to come in by letting tenants and property investors co-own the properties in a legal entity such as a Limited Liability Company (LLC) structure in the US so that there would be a positive yield on their investments, similar to a real estate syndication process on commercial properties but with much more scaled down expenses and procedural complexity. Due to its simplicity, this new commercialized service is ready for use by investors and homeowners without having to rely on the participation or any involvements by the federal, state, local governments or banks and major financial institutions on Wall Street. It is indeed a Main Street solution created by, operated through and designed for the common people on Main Street. It is a perfect and timely way to finally be able to bring housing finance from the harmful hands of Wall Street back to the common people on Main Street, given how capitalism has been abused by the privileged few on Wall Street within the past few decades. A common base structure for the US market is currently composed of a simplified real estate syndication process using an LLC legal entity. Each structure will be put together by a syndicator with up to a total of perhaps 10 members in the LLC. One of the co-owner


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members will be renting the property from the LLC and will treat the property as his/her own principal residence. For example, a home seeker could identify a property in a particular geographical location. Instead of using a down payment say 5, 10 or 20% of the property value to apply for a conventional mortgage, which under most current circumstances he/she would not be qualified for these days, he/she could join a group of property investors to co-own the property in this all equity based syndicated LLC structure to co-own the home property. Then he/she would simply pay a free market level rent to the LLC. Although further financing using the property owned by the LLC is always possible as a variation of FARJHOSM if all members of the LLC so desire and approve, it is not a recommended structure. The intention of FARJHOSM is more to help tenants become homeowners through a minority stake ownership in the jointly owned LLC in order to have a skin in the game. A pure shared equity based structure without borrowing at the property level provides the long term social stability for home ownership and increased true housing affordability. Borrowing, if any, should be done only on an individual basis before each of the members come to the table with ready cash to form the FARJHOSM LLC to acquire the home properties. Since tax considerations are entirely passed through to each of the members in an LLC entity, there is normally no point in using further leverage at the LLC level. The use of moderate, reasonable and/or temporary borrowing for temporary cash flow management purposes could be considered but should never be done to the degree that negative yield or negative cash flow occurs in the life of a FARJHOSM structure ownership period. Tax advantages are man-made by nature. They reflect a government’s housing and property investment policies at any given point in time in human history. Better tax treatments may follow prudent government policies when the economic benefits of innovative housing finance methodologies are more fully understood and accepted by the consumers in the future. For the time being, there do not seem to be any disadvantages for any participating members of the FARJHOSM LLC. Under the existing tax rules, property investors including the homeowner/occupier could manage the interest deduction individually since the rental income will pass through to each of the US based LLC members. For the homeowner/occupiers in the FARJHOSM structure, due to their dual roles, they could in addition take advantage of the tax benefits of principal residence such as interest deduction (if they had borrowed for their portion, an unlikely and not recommended scenario) and capital gains tax exemption for the portion of the equity that they own in the LLC. If they are interested in getting more of these conventional tax advantages, they could either decide to have a larger share of their equity holding in the LLC or simply switch to a complete ownership through conventional mortgage borrowing anytime they want, as long as they are able to afford it and be qualified for the loans.

will serve as an additional complementary consumer choice to increase housing affordability under free market principles, it is not meant to replace any housing finance methods already in existence. It will only become a Joseph Schumpeter's creative destruction to replace other older home financing methods if its new economic value is proven and adopted by the consumers through further public education and awareness. For now it serves as a perfect alternative when homeowners either cannot afford the conventional borrowing or are not interested in the conventional burden of debt.



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Buy-out arrangements when desired, could be customized and structured in each individually syndicated LLC between members in the LLC operating agreement of the LLC to serve different purposes of each of the members. However, these buy-out arrangements on the very same property could be cumbersome, inflexible and mostly unnecessary when other methods could be much more effective and efficient. For example, a home occupier in a SM FARJHO LLC structure already could simply more flexibly and reversibly buy into a neighbor's FARJHOSM LLC structure if he/she simply wants to increase or decrease his/her investment exposures to the local property market. Furthermore when SwapRentSM transactions become available at a trading exchange or at the peer-to-peer Internet portal site REIDeX.com in the near future, the flexibility and reversibility features as well as the benefits of FARJHOSM will only get to fully present themselves at that time. Since one of the main new economic benefits of both FARJHOSM and SwapRentSM is to help property owners separate the investment value from the shelter value of owning a real estate property and manage them separately, SwapRentSM being financial derivatives based, offers a much easier, efficient, effective and low cost way to manage the investment value of owning a real estate property than simply buying and selling the FARJHOSM LLC member interests on the very same property among the LLC members or even buying and selling member interests from other neighbor's property FARJHOSM LLCs.

3. How and When to Apply FARJHOSM?
The following examples are on how to use the new FARJHOSM structure to apply the new economic concept of the separation of shelter value (use or usufruct value) and the investment value (economic value) of a conventional ownership of a real estate property.

Example 1 - From aspiring home owner's perspective:
A home seeking person who currently rents identifies a property in a geographical area of his/her choice. He/She has the 10% (or any number between 1% to 99%) of the property in cash from his/her own savings and would like to seek to jointly own the property with other investors as the ideal home owning structure. The reasons could be because that he/she may not have enough monthly income to qualify for a conventional mortgage, prefers to use the discretionary monthly income for other household expenses, does not think the property value may increase in the near term, is directed by his/her particular religious belief that rejects the lending/borrowing concepts or simply due to any other personal preferences. He/She commits to pay a pre-agreed rent payment to the FARJHOSM LLC that holds the title of the property for a specific period of time. The remaining 90% property ownership could be shared among up to say, nine other individuals, corporate, institutional or even governmental entities in any proportion. In this example, 10% of the monthly rent payment received by the FARJHOSM LLC will also be distributed after deduction of proportionate expenses back to the tenant/co-owner.

Example 2 - From joint property investor's perspective:


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A group of investors have identified and bought a particular single family house at a bargain price through a syndicated LLC structure either through a short sale process or from a bank’s REO portfolios. The syndicator of the FARJHOSM LLC tries to find a long term tenant of this single family house in order to generate stable long term rental income. This could be because none of the investor members has a plan or desire to use the property as their own home. The investors' interest is only treating it as an investment. Since many tenants do not commit to the long term and do not usually care about the houses that they rent, it would be nice if the property owners could somehow offer the tenant a partial ownership interest so that the tenant would want to take care of the property as though it is his/her own. The syndicator/property manager makes an offer to a qualified tenant who has the ability to come up with the cash to pay for a small percentage (any number between 1% to 99%) of the property value and invites him/her to join the LLC as a minority stake holder/member himself/herself. Once the tenant becomes the minority homeowner, he/she may intend to stay for the long term and would treasure the property and take good care of it as thought it were his/her own. In fact it is indeed his/her own shelter-wise, albeit partially in a financial sense. Although he/she does not have the economic income capability normally required to own the property entirely he/she gets to enjoy the high quality home in the neighborhood of his/her choice. Through buy/sell agreements between LLC members as one of the methods, the homeowner could increase his/her equity ownership through buying existing member’s interests. Alternatively, he/she could use SwapRentSM contracts to do so when the SM SwapRent contracts become available at REIDeX.com in the near future. Since the SM SwapRent contract is a form of financial derivatives, it is a more efficient, effective and low cost way to make real estate property investment then simply buying and selling FARJHOSM LLC member interests. In the worst case scenario, he/she could also become a LLC member in another property in the same neighborhood whenever he/she has the increased economic ability to do so and would like to have more investment exposures. It would be a pure financial investment decision to be made separately since it has nothing to do with the shelter interest of the house they already occupy with the full use of it. Comparing with conventional commercial property investments, FARJHOSM offers property investors less worries about vacancy and expenses. In commercial real estate investment lingos, the investor’s SGI (Scheduled Gross Income) equals to his/her GOI (Gross Operating Income) and also to his/her NOI (Net Operating Income) since both annual vacancy loss and expenses are most likely zero in a FARJHOSM structure to own the property.

Example 3 - Current applications in the US:
A homeowner currently owes in a mortgage more than the value of their house. He/She contemplates a strategic default on his/her own house but does not like the idea of becoming an apartment renter. A buy-and-bail strategy sounds more appealing to him/her. He/She could use an all equity based FARJHOSM structure to become the minority owner/renter of an alternative property in his/her neighborhood before he/she begins discussions with his/her


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current mortgage lending bank to give up his/her existing homes in either a short sale or a flat out walk-away foreclosure. The strategic defaulters usually could not secure another mortgage to buy another comparable home before or after he/she walks away from his/her existing home. To qualify for a new mortgage on a second home, he/she has to either have 25% to 30% net equity in his/her existing home or a very large fully documented monthly income to qualify for the mortgage payments of two homes. This is often not the case with most homeowners in the current economic environment. An all equity based FARJHOSM co-ownership structure makes it convenient for a smoother transition to a long term comparable or even nicer and often more spacious home through a partial equity ownership without having to lose the homeowner status by becoming a conventional apartment or house renter. It may turn a somewhat embarrassing, face-losing event into a move-up in prestige as a partial owner of a much bigger and nicer house in a better neighborhood!

Example 4 - How to use borrowing to achieve leveraged higher investment returns under FARJHOSM:
In a FARJHOSM transaction, each individual member co-owner can decide whether to borrow for their portion or not. Cash rich investors do not have to borrow. No group decision or action to borrow together is necessary. If some of the co-owner members want to borrow individually for themselves, then the borrowing leverage (LTV) is up to each of the members individually and their individual lenders using their percentage ownership in the legal entity or the corporation as the collateral. So let's say a Texas home which is worth $100,000 is being bought by a FARJHOSM LLC. Three members, A (20%), B (40%) and C (40%) pooled the capital to form the LLC to begin with so that the LLC had the money to buy the home. The LLC did not and will not borrow any money or use the property as collateral to borrow any more money. Since neither the SM FARJHO LLC nor the home property itself owes any money, therefore there is no possibility of a foreclosure of the home property, ever! Member A was supposed to be the home occupier (AHO), so he pays the LLC a market based rent every month for 3 years say in a 3-year lease as an example. It could be any lease maturity and will be negotiated and agreed by all the members in the LLC. In terms of borrowing, Member A did not borrow to come up with the $20,000 since as the home occupier he wants stability. Cash ownership by him also injects confidence to other coinvestors in the LLC. Member B does not like to be burdened by the debt service so he did not borrow to come up with the $40,000 cash either. Member C likes to punt and strongly believes in using leverage to achieve high returns. On the other hand, he does not have enough money for the required $40,000. Say he only has $10,000 in savings so he borrowed $30,000 from a lender using his 40% share or member interests in the LLC as the collateral for the lender. The leverage that Member C uses is 75% LTV of his partial member interest in the LLC and his down payment equals to 25% of the value of that partial member interest in the LLC. So in the example above, pooled cash was used to purchase the property entirely and no


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borrowing using the property as the collateral was involved. Borrowing activity, if any, will be conducted only at the member level at each member's discretion only. That is exactly the spirit of how the new FARJHOSM concept and method to own homes that could be used to eradicate the foreclosure possibilities, irrespective which country the homes or the home owners are located.

Example 5 - Section 8′ed FARJHOSM - AHOs who are Section 8 rent payment assistance recipients
Section 8 rent payment assistance program is a US federal government sponsored program that offers monthly rent payment assistance to low income working families based on the Section 8 of the United States Housing Act of 1937. The program will be explained in more details in a section below. A current Section 8 rental assistance payment recipient inherited $50,000 from his parents. She does not want to put it in the stock market or any mutual funds which she is not familiar with and she thinks those Wall Street stuff are too risky. She wanted to use it to buy a home but the amount is not big enough to buy any homes in Southern California in an all-cash deal. She can not use it as a down payment to borrow any mortgage because no lenders would be interested in talking to her due to her low income status. The lenders do not believe that she could generate enough monthly income to service a mortgage payment. She heard about the new Section 8′ed FARJHOSM program from the local housing authority of her city. She found out that she could team up with a few free market based Joint Property Investors (JPIs) to form a FARJHOSM LLC to buy a home together and get the new home qualified as a Section 8 property. She could then simply apply the rent payment assistance from the existing Section 8 program as the rent payments to the FARJHOSM LLC. In this way she would not only just be a tenant but also become a partial home owner under this SM FARJHO arrangement. Since she is not restricted to renting from a multi-family apartment complex in the run-down districts only, she decides to buy a REO single family house from the Fannie Mae Homepath program in a decent neighborhood as her dream home. The cost of the house is $300,000 in a city in Southern California. In this FARJHOSM structure she would own 1/6 of the equity ownership of the FARJHOSM LLC. The remaining balance of the house price was paid by five other free market based investors. Investor A and B who put in $30,000 each are individuals using their retirement money in their respective IRA accounts. Investor C who put in $100,000 is a local public employee pension fund. Investor D is a foreign individual and he put in $40,000. The remaining $50,000 was put in from an individual property speculator who prefers to use leverage to enhance the potential investment returns. He put down $10,000 cash and borrowed $40,000 so that he could deduct the interest expense for this investment. The Section 8 recipient gets $1500 monthly rental assistance from the Department of Housing and Urban Development (HUD) every month. She contributes an additional $200 so her total monthly rent paid to the FARJHOSM LLC is $1,700. This equates to an annual rental yield of 6.8% to all members of the investor group in the FARJHOSM LLC which the Section 8 recipient/renter herself is also a member of. That is her annual investment income for each year she stays in as a 1/6 interest member. In addition, she will also enjoy the financial value of 1/6 of the potential appreciation of the home property.


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The free market based investors are interested in teaming up with the Section 8 recipient over other regular higher income Aspiring Home Owners (AHO) because they might think, rightfully or wrongly, the credit risk is much lower since the bulk of the income rent payments would come from the assistance of Uncle Sam!

4. Creating and a tradable equity market for home ownership and making Single Family Residences (SFR) an investable asset class for institutional investors
In the current market in Southern California as of November 2011, through FARJHOSM, a Joint Property Investor (JPI) could expect between 6 to 9% or even higher annual current dividend yield from the rental income in a typical 2 year or 3 year residential real estate lease while waiting for the market recovery and further price appreciation of US residential properties without worrying about vacancy or excessive annual operating expenses. The total returns, which are cumulative annual dividend yield plus the holding period price appreciation, could be quite significant due to the potential price rebounds from many distressed and foreclosed properties. The more popular this type of non-debt, fractional interest equity investment to attract fresh capital injection from around the world to jointly own homes in certain local communities becomes, the more likely the property market will indeed be restored to its previous value with a "non-leveraged stable growth" sooner. Homeowners would also get to enjoy the social stability at the same time. Academically, one of the main economic benefits that both FARJHOSM and SwapRentSM contracts, each in their own different ways, provide to investors is to make Single Family Residences (SFR) income producing assets (with a stable positive yield like that of owning a rental apartment) and hence made investable by professional institutional investors. It would be a great way for pension funds and insurance companies to diversify their portfolios further by extending the investment choices into currently the world's largest asset class through these new innovative investment vehicles. The state, county (and city) public employees and teachers pension funds would be good examples of potential candidates to become the anchor local institutional property investors to help state residents and local homeowners to co-own homes through the new FARJHOSM concept in order to foster local economic revivals and continuing prosperity. They could of course resell those FARJHOSM LLC member interests to other free market investors at any time in order to regenerate and scale up the scope of available capital. Attracting fresh capital from around the world this way to local communities could certainly help the state, county and city governments fix their current budget deficits under a free market mechanism. In reality, these proactive efforts and involvements by the local governments to attract free market investor's money are similar to what most of them have already been doing through their economic development agencies on the commercial property side. It is a much better method than those redevelopment agencies that only rely on a handout from the federal government using tax payer's money through block grants.


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Policy-wise, the simple new economic concept is that people would need to start thinking outside the box, borrowing money using properties as collaterals to own homes should not be the only way to own homes. Promoting home ownership for social good purposes could also be accomplished through partial equity sharing, just like how corporate ownership has evolved in the last few centuries with the development of a stock market in each country. It may be about time that we should seriously treat equity financing and developing a tradable secondary market of home equities as a viable way to promote home ownership. In addition, with the introduction of the separation of shelter value from the economic value (or usufruct value from the investment value) of owning a real estate property by the new SM SwapRent related methodologies and its secondary market REIDeX.com, boom and bust cycles created by the investment value of properties and exacerbated by the abuse of lending/borrowing could easily be avoided and homeowners could get to enjoy the social stability as long as they stick to the shelter value part of their home ownership and treat whether to invest in home equity or not as a totally separate issue. Therefore, the interesting concept to note again is that the residential SwapRentSM and SM FARJHO applications on Single Family Residences (SFR) basically make SFRs similar to investable income-producing assets like multi-family apartment complexes and should hence be treated like any other commercial properties for institutional investments by pension funds, endowments and insurance companies, etc. going forward.

5. From the old Pool-Borrow-Buy (PBB) equity sharing concept to the new Borrow-Pool-Buy (BPB) concept - A simple innovation in housing finance that could eliminate home foreclosures all together
In the current practices of our Western banking industry and our real estate investment industry until today, people always use the property directly as a collateral to borrow money to purchase and own a real estate property. Tax codes were also often designed by the lawmakers to give preferential treatments to investors who have borrowed using the property as collateral to invest. This has caused severe financial crises and social instability again and again in history when the lending standard had been loose and when certain participants abused the system. As far as the equity sharing or shared equity concept goes, it is usually a quite common practice in commercial property investments rather than residential real estate investments such as home purchases. This is due to the fact that commercial investment projects are either of a larger investment amount or they are usually made for investment purposes only. People are used to pool money to purchase a commercial income producing property or a group of properties. Unlike commercial properties, many purchase decisions of homes are made more for sheltering reasons. Home owners could also afford to own the home directly without other investors' help since the investment amounts are usually much smaller when compared with commercial property investments. In addition, home owners usually have a natural desire to have full control of the property. The problem with using the property as the collateral to borrow in the old shared equity


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property financing method of Pool-Borrow-Buy (PBB) is that if the property value declines, it may automatically trigger a massive selling either voluntarily or involuntarily, which will feed on itself and create a market collapse. It makes no difference whether there are any equity sharing in the down payments or not. Foreclosures will happen either way and hell will break loose either way. The equity sharing concept as practiced in those older methods were therefore naturally deemed useless. For commercial real estate market, foreclosures usually immediately create an economic problem. For the home ownership or residential real estate market, it will present not only an economic problem, but also a severe social problem as well. These problems have been clearly illustrated in many of the financial crisis events within the past few years in many overstretched Western countries. Therefore, in my personal view, sharing equity as down payments only in order to qualify for borrowing or to borrow even more will not help much economically and contribute almost nothing socially to home ownership in our society since borrowers could still be subject to foreclosures. It is a quick superficial short term fix to increase fictitious housing affordability and it may end up promoting even more un scrupulous borrowing. Unfortunately these SEM (Shared Equity Mortgage or Modification), SAM (Shared Appreciation Mortgage or Modification) or factional interest home equity investment schemes are exactly what have been touted by many other practitioners, governments and academics alike until today. They have not so far been well received by consumers. Those structures will not solve our country's home financing and home ownership problems socially or economically over the long term. Governments who set up policies using those ill-advised primitive methods (e.g. the original HOPE for Homeowners proposal in 2008) have only destroyed people's confidence in the equity sharing concept to solve the problems and let the mortgage foreclosure problems deteriorate further day by day. The Hope for Homeowners (H4H) Program is a loan program that was a part of the Housing and Economic Recovery Act of 2008. The guidelines for the product were released by FHA on October 1st, 2008. In the original HOPE for Homeowners (H4H) offering, the Federal Reserve together with the HUD Team proposed a non-free market based arbitrary equity sharing scheme for debt principal reduction as (Ref 3) 100% if the property is sold after 1 year 80% if the property is sold after 2 year 70% if the property is sold after 3 year 60% if the property is sold after 4 year 50% if the property is sold after 5 year There were few takers. Any further consideration by other national policy makers and economists of using equity sharing related concepts to solve our country's severe housingled economic problems on a large scale also quickly died with it too for now. The incompetence of these policy makers is indeed very unfortunate and lamentable. The worrisome part is that even when the top level politicians change posts later on these same technical middle level managers may still be the ones that will continue to squat on the same


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positions at the Fed and at the HUD since these subject matters may be deemed too technical for the top level politicians or top level policy makers to mess around with. Why is FARJHOSM different? The three differentiating concepts created by the new SM FARJHO (Flexible And Reversible Joint Home Ownership) structure are again: First, it corporatizes home ownership one home at a time so that it will create a familiar and convenient legal vehicle for other investors to share the equity of the home property with the home occupier who is also a co-owner of the property. Second, it offers the real estate investors a chance to use leveraging to enhance investment returns through a new Borrow-Pool-Buy (BPB) concept over the conventional Pool-BorrowBuy (PBP) concept used in equity sharing methods which has been practiced until today for both commercial property investments and most of the other home equity sharing schemes or some other proposed factional interest home equity investment and financing schemes. Thirdly, it provides an enhanced stability for the home occupier through a voluntary feature offered by the Aspiring Home Owners (AHOs) to the other Joint Property Investors (JPIs) to use the AHO's equity stake in the FARJHOSM LLC as a buffer for JPIs to deduct the missed monthly rental payments by the AHO so that the AHO would not be evicted so easily until the buffer runs out. It therefore offers much more home occupier stability than any other rental arrangements. By using the new BPB method, it means that the fractional or partial owners in a home, either the Joint Property Investors (JPIs) or the Aspiring Home Owners (AHOs) could all have a choice to borrow against their individual member interests in the FARJHOSM LLC structure so that they could pool the money to purchase and own the home property in cash together. The AHO who will be the sole home occupier will simply pay the legal entity property owner SM FARJHO LLC a free market based monthly rent similar to a usual tenant of the property.

When home ownership and housing finance practice have been transformed into this new SM way, pretty soon there would not be any home foreclosures any more. It would indeed be a pioneering innovative effort for the proactive banks, credit unions or any other mortgage lenders to think outside the box and consider to start lending to the FARJHOSM LLC members using their individual member interests in the FARJHOSM LLC as the collaterals. Even a new type of non-profit oriented cooperatives could be set up for this member level financing purpose that could help aspiring home owners both in terms of debt and equity financing. Instead of the usual names of a Credit Union or a Savings & Loans that are common in the US, these new entities could be called a Credit and Home Equity Union (CHEU), a Savings, Home Equities & Loans (SHEL) or simply a Credit and Home Equity Cooperative (CHEC) for example. If and when any of the LLC members ever loses his/her monthly income capability, he/she could either sell their member interests to other free market based investors or let it be foreclosed by the lenders individually. Therefore either a new free market based investor or the lending bank would replace the defaulting co-owner and become the new co-owner with the current home occupier/co-owner (AHO) and all other joint property investor (JPI) coowners.


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Lawmakers in many countries could certainly consider passing a law to request all home lending to be conducted under this FARJHOSM based concept of member level lending through a transitional implementation period. Therefore it seems there could be many political credits to be claimed for if any politicians who could champion these new ideas and make the necessary efforts to make it happen in each country in order to create increased neighborhood stability and enhanced social harmony in his/her country through the elimination of foreclosure possibility in a new home ownership structure. In the US, there could be another great opportunity for any aspiring statesman to champion to waive the annual LLC franchise fee for low income working families so that it would be possible for them to use the convenient LLC structure to corporatize their homes under the SM FARJHO concept and method. Using the $800 franchise fee that is required in the state of California as an example, it may not be a major cost factor percentage-wise for $2 or $3 million coastal mansions in Orange County but it would easily become a heavy burden for the partial homeowners in a $100,000 or $200,000 homes in the Inland Empire area in Southern California.

In addition, it may also be a very helpful way to encourage AHOs and JPIs to participate in SM transactions to own homes together if Congress proceeds with their intended plan to phase out the current home mortgage interest deduction tax provision (Ref 4) in order to help cut budget deficit. Since neither AHOs nor JPIs would need such a provision because they could already deduct the interest payments from the rental income if some of them have borrowed individually using their FARJHOSM LLC member interests to own their portion of the property ownership. It would indeed be a politically win-win proposal.

6. FARJHOSM combined with Section 8 rent assistance in the US - Section 8'ed FARJHOSM!
As explained in the example above, Section 8 rent payment assistance program is a US

federal government sponsored program that offers monthly rent payment assistance to low income working families based on the Section 8 of the United States Housing Act of 1937. The program provides monthly payments of rental housing assistance to private landlords to assist about 3.1 million low-income households currently (Ref 5). One of its largest program offers tenant specific rental assistance. A low income tenant can move with existing rental assistance provided through a local housing authority from one rental apartment to another approved rental apartment or even another single family house if the single family house gets qualified. We have been on the lookout for developing more FARJHOSM and SwapRentSM based housing affordability programs for PeoplesAlly Foundation so that the new economic benefits could also be extended to low income working families based on a free market basis. It seems that there potentially could be a great match. One of the very convenient ways for Joint Property Investors (JPIs) to make lower risk investment through FARJHOSM LLC structures is to pair up with the Section 8 recipients in each state as the AHOs (Aspiring Home Owners). Since the rental income is provided by the


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federal government's Section 8 program, these potential partial home owners who are low income working families will present much lower credit risk in rent payments than other regular low income renters. Through the Section 8'ed FARJHOSM program, PeoplesAlly Foundation could make the assistance money for the working poor already committed by the Congress to work much more efficiently. It will not incur any more taxpayers money while being able to promote more neighborhood stability and social harmony from much reduced incidences of landlord-tenants disputes by simply turning renters into minority co-owners. As explained above, Section 8 rental assistance payment recipients could already choose where they want to live. The program has become a tenant oriented assistance program since 1998 rather than building specific as in the past or as in many other affordable housing projects which are often plagued by many social problems. What if some of these recipients have worked hard and earned some savings or inherited some small sum of money? Let's say it is $20,000 (could be any reasonable amount). It is not large enough to buy a home here in Southern California and they can not use it as a down payment to borrow a mortgage to buy a home with a 100% ownership since they have very low income to service any loan. Why not let them own a piece of the property that they rent through the FARJHOSM structure? It would be a win-win for the Section 8 rent assistance recipients and the landlords. By having a part of the ownership, they would treasure and love the homes that they rent from the Section 8 approved building landlords. They would get to have a percentage of future appreciation value of the property that they own and they would take care of the properties as though it is their own. Most importantly, it would develop a sense of pride and self prestige that they may have become a proud home owner (although partial) and be a more useful and stable member of the local neighborhoods that they reside in. That could be one of the best features (the invisible hand?) of capitalism at work made possible by the new FARJHOSM home ownership structures. Landlords would for sure no longer have as many problems with the tenants as they once did! Furthermore, since the Section 8 recipients could choose where they want to live, they no longer have to reside in multi-family housing complexes. It is a perfect chance for some of them to choose a dream house to buy through FARJHOSM from the pools of HUD REOs, Fannie Mae Homepath REOs and Freddie Mac HomeSteps REOs so that they could help the US governments clear those massive unsold foreclosed home inventories. This could be a perfect way to help the working poor in America realize their American dreams without using any more of the tax payer's money or repeating the mistakes of many of the much more dangerous mortgage variations and/or securitizations.

7. Applying life insurance policy to FARJHOSM - Coli'ed FARJHOSM
There are many variation possibilities to add on some bells and whistles to the basic form of a FARJHOSM LLC structure for the benefits of sophisticated consumers under the current legal infrastructure in the US.


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A simple example could be the use of life insurance policies for AHO and JPIs members of a SM FARJHO LLC. For example, it is very easy to create a new product called Coli'ed SM SM FARJHO as one of the optional features for potential FARJHO LLC members. Coli is the acronym for "Corporate Owned Life Insurance" on employees. They may also be called a Boli "Business Owned Life Insurance" or an Eoli "Employer Owned Life Insurance" policy. The value proposition is that if a member of the FARJHOSM LLC passes away during the life of a FARJHOSM structure, then the life insurance proceeds could be used for the buy-out of the interests of the deceased member by the rest of the FARJHOSM LLC members. Since the use of Coli has been a bit controversial by many corporations in the past, irrespective of the fact that it is perfectly legal and even ethical when applied prudently, it may not be a good idea to promote it before the basic form of FARJHOSM has already become a wide spread success. Sophisticated and informed consumers may see the economic and social benefits of such an arrangement and they may choose to have it in the future as time elapses. Then similar structures could be easily arranged as a standard optional feature to have it applied to potential LLC members of a FARJHOSM LLC structure when the participants are all eligible and have unanimously voted in favor of it. More prudent consumer choices on a free market basis would always be a good thing.

8. The "Bernanke Arbitrage Trade” - fellow rich Americans helping fellow Americans own homes as a brilliant investment opportunity for themselves
To illustrate that the new FARJHOSM structure and its associated transactions could selffinance the various intended economic and social objectives of aspiring home owners, joint property investors and governments, etc. on a pure free market basis, we will have to first demonstrate how investors could proactively take advantages of these new innovations and benefit from them without any government involvement or assistance via tax payer's money. This way new and fresh capital will be injected into local communities throughout the countries voluntarily by investors from anywhere around the world to revitalize the local economic prosperity. Furthermore, the unpopular reliance on foreign and outside capital is not even necessary. Within local communities themselves, an easy financial arbitrage could be established by current home owners who have paid off their original mortgages on their own properties, assuming they have some income sources to secure a new mortgage on their current properties. Alternatively, any homeowners who have existing excess home equity to do cash out refinance could also take advantage of these timely arbitrage investment opportunities while mortgage rates are still at all time low. In light of the tight credit market for home owners in the US, this is an excellent example on how rich home owners could help their less fortunate neighbors so that people together could help revitalize the local economy by themselves on Main Street. They will not be doing it on a pure charitable basis. They will make money and do well while doing good.


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For example, there are many wealthy people in Southern California who own multi-million dollar homes along the coastal area from Malibu, Pacific Palisades, Beverly Hills, Manhattan Beach, Newport Beach, Laguna Beach down to La Jolla in San Diego. Many of them do not even have a mortgage or with a very low outstanding balance. On average many decent homes in these exclusive coastal area are worth above two million dollars. It may be a good idea for some of them to have a cash out refinance to put their idle home equity to work. Say they could simply borrow only one million dollars (50%) from their two-million-dollar home and use that money to invest in a partial ownership through a member interest in a FARJHOSM LLC deal to help some other less fortunate fellow Californians to partially own homes? One million dollar cash could probably help finance three or four FARJHOSM transactions in the Inland Empire area for example, where average decent homes could sell for only around $300,000. This is by no means just a charity work for these rich property owners. They could potentially do very well and become much richer over the long term by doing good this way. At today's writing in mid-November, 2011, the level of a 15-year fixed rate mortgage is about 3.38% and a 30-year fixed rate mortgage is about 4.02%. In a FARJHOSM deal the current market rental rate comes up to be between 6% to 9% of the house value annually and could be even higher in certain area. The net positive carry could range between 2% to 4% after expenses such as property taxes and insurance premium annually. Generically speaking, that means if a rich home owner with a $2 million home borrows a fixed rate mortgage of $1 million (50% LTV) and invests the cash as a JPI (Joint Property Investor) to help 3 to 4 other AHOs (Aspiring Home Owners) to buy homes through the SM FARJHO structure, he/she could earn a minimum net spread of between 2% to 4% on the one million dollars every year for the next 15 or 30 years while turning his $2 million home equity in his current property into a total equivalent of $3 million home equity to enjoy the potential price appreciation for the next 15 or 30 years. If or when home prices start to go up anytime within the next 15 years or 30 years, he/she could simply unwind the trade by selling the homes he/she invested in when agreed by the AHOs, selling only the FARJHOSM member interests to the AHOs or to any other third party investors in order to take profit. He/she can then use the proceeds (much higher than $1 million by now) to pay off the original $1 million loan (either amortized outstanding balance or a balloon depending on how he/she had financed). He/she could have the choice of using either an interest only loan or a fully amortized loan for this 15 or 30 year fixed rate mortgage, with some benefits trade-off of course. A 30 year fixed rate mortgage could bring the combined monthly interest and principal payment down further than a 15 year fixed and a net positive annual income yield could usually be higher when the mortgage payments are amortized. 15 year fixed rate on the other hand would have a much lower monthly payments when an interest only payment arrangement is adopted. Even if prices do not appreciate during the holding period in the future, the investment strategy could still be viewed as a low risk alternatives to other investment opportunities as long as there are positive “carry”, i.e. net positive yield every year that results in actual income every year during the holding period. There are also justifiable tax oriented incentives such as the home mortgage interest deduction for unlocking this primary residence home equity through a moderate leveraging for those wealthy people. As long as they stick to either the 30-year or 15-year fixed rate


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mortgages so that there would not be unnecessary interest rate risk in the future, it could be made a very prudent investment option for them. The main social benefit out of this proposed investment strategy and the timely creative application of the FARJHOSM program is that the local common people on Main Street could indeed have a chance to control their own destiny by bringing about a local property market recovery and hence the local community economic revival while the money-influenced politicians in Washington DC, incompetent federal policy makers, Wall Street bankers and the left wing Wall Street Occupiers may continue to fight against each others and among each others under a feeble US government leadership for the foreseeable future. Finally, with the dollar depreciation and high inflation almost a certainty in the future as the Federal Reserve continues their loose monetary policy, increased home equity exposures would very likely outperform most other financial assets in a high inflationary scenario. This timely arbitrage trading opportunity arises primarily due to the Federal Reserve Chairman Ben Bernanke and his cohort's championing of a very loose monetary policy and some unconventional methods such as the repeated Quantitative Easing programs known as QE and QE2 to re-inflate the economy which so far have only benefited the privileged few on Wall Street, hence to namesake credit of this timely financial arbitrage transaction for people on Main Street to be able to benefit from the low interest rates as well.

9. Implementation Strategies of FARJHO and SwapRent - good economic stimulus public policy or cornering the real estate market by investors for profits?
A very obvious winning strategy of implementing either FARJHOSM or SwapRentSM alone or together is to simply concentrate the investments and focus on a few selected neighborhoods in the US, perhaps some mid-sized cities in Southern California as an example. Let's have a quick review on the economic concepts of the investing dynamics first. Real estate market as an investment asset class is often more about the Beta than the Alpha as compared to investing in the stock markets. Although that sounds a bit academic to many people but what it means is actually very simple. The way the real estate market moves ups and downs depends more in sync with the country's economy policies made by the government as a whole, even with the consideration of regional economic factors and/or individual homeowner's specific maintenance and caring of their properties. The residential real estate market in the US normally behave with a much higher correlation to government dictated lending policies and private lenders' credit underwriting pratice than individual home improvements. On the other hand, listed individual companies could much easily out perform or under perform the US stock market and behave individually based on their own individual earning power, management merits and demerits, irrespective what the government's fiscal or


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monetary policies are. As a result, whenever there is a lack of prudent and wise governments policies, the entire country's homeowners and small town businessmen on Main Street in America suffer. The supply and demand factor of the residential real estate market has always been solely determined in the US by the interest rate levels and the degree of the looseness of credit underwriting practice for people to borrow to own homes. In the past, local governments or free market based private sector investment companies could not alter the local market supply and demand factor since the interest rate levels and home mortgage credit policies have been determined solely at the federal level and by the big banks on Wall Street since they monopolize the housing finance business. In addition, single family houses are much more difficult to manage than apartments as income producing investment properties in the past since people who could rent were usually urged to buy with or without the ability to service the mortgage loans. As a result, renters for single family houses in the suburbs are difficult to find and keep. The arrival of FARJHOSM and SwapRentSM have finally found a way to change that situation. Now through the new FARJHOSM structure, SwapRentSM transactions and their secondary markets, local government housing agencies, pension fund managers, free market based private sector investment companies and/or individual investors could finally alter the local property supply and demand factor and drive the prices of the local property markets up (and down if necessary) irrespective of what the federal government's fiscal, monetary and housing policies are at any given point in time. The very simple concept for local community economic growth is that the more fresh new money pumped into the local economy the more likely the local economic activities could be revitalized when the money is put in good productive use. The FARJHOSM structure and SM SwapRent transactions could make this simple economic concept a reality and make the economic miracles happen in the local communities without having to rely on tax payer's money in the conventional fiscal stimulus sense or risking a hyper inflation by altering the interest levels further in the monetary stimulus sense. First FARJHOSM could help any new home buyers and joint property investors buy more homes using cash on hands without relying on credit for debt financing and hence create demand for homes and support the local property price level. Further prudent us of leveraging could also be done at the member level, not the property level, as described before. Second, on top of the demand created by FARJHOSM, SwapRentSM could help distressed


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homeowners hang on to their homes and hence remove the selling pressure in the local property markets. In addition, as also explained before in the HFI article on SwapRentSM published in December 2009, SwapRentSM could also help speculators buy more properties by sharing partial appreciation with other free market investors and hence increase even more buying demand for homes through increased capital sources. Furthermore, SwapRentSM could also be used to finance local small business investments by entrepreneurs who are property owners and hence create more jobs. Even rich home owners who do not need the cash could also take advantage of the free market based SM SwapRent program and hence increase dispensable income and create higher consumption powers in the local communities. These are the various functions of the SM SwapRent contract in its new potential role to perform as a new economic policy management tool for government policy makers beyond simply acting as a new housing finance method for consumers as it was originally created for. The details of how it could function as an economic policy management tool were more fully explained in the previous article in the HFI December 2009 issue. The main reason why the FARJHOSM structures, SwapRentSM contracts and the associated secondary markets could work much better in bringing back the local economic prosperity than the conventional ways of property ownership is that they could attract much more fresh new investors' money, in a non-debt equity form, through the ease, the flexibility and the reversibility features with which the real estate investors could manage their investments much better, faster and cheaper. FARJHOSM and SwapRentSM in a sense will make the previously "un-investable" single family houses an "investable" new asset class for institutional investors around the world. As of the current writing, most free market based investors are currently apprehensive about the lack of obvious immediate appreciation potential for the US residential real estate markets due to the current unhealthy and uncertain government distated economic policies. However, aspiring home owners, local government agencies and free market based investors could indeed create by themselves the demand for properties in the local market through the new methods of FARJHOSM and SwapRentSM. When the more fresh new money has been poured into the local economy, the more likely the property value would have been driven up, the more free markets investors would be further drawn to investing in the local markets and the more aspiring home owners from neighboring communities would also choose to relocate to these local communities to own homes. Creating the local property appreciation and economic prosperity in a confined geographical area could indeed become a self-fulfilling prophecy. The key concept here is that smarter investors would most likely want to focus all their


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investments in a few selected neighborhoods with those wise local government officials who want to help facilitate these investment and economic revitalization processes to attract fresh new money so that there would be enough gun powder concentrated on these selected area to get the bang on the buck to artificially create the necessary debt-free property appreciation. With the local property value appreciation and increased new economic activities, all the current local government deficits, local economic weakness, local resident's joblessness and the associated social problems could all be eliminated in one fell swoop. In a sense, maneuvering these property price dynamics could be interpreted as cornering the market for illicit profit by a few individuals to benefit themselves. However if the end results are to benefit not the privileged few but the majority of the home owners and other local citizens in these local communities and the local governments, then "cornering markets" could indeed be euphemized and re-termed "economic stimulus" to bring back local economic prosperity instead. In reality, cornering the markets of stocks and bonds was exactly what our federal government and the Federal Reserve Board have successfully tried to do in order to make the Wall Street folks richer and the big businesses awash with cash in recent years. Perhaps they had hoped for that there would be enough bread crumbs to fall to Main Street for people there to survive but that did not happen and most likely would never happen. Together the Administration's wasteful fiscal policies and the Fed's unconventional monetary policies have built up our country's uncontrollable national deficits. Since the bubble building techniques that the Fed has employed were based on money they did not have, those bubbles are doomed to burst some time down the road. What they had failed to find a solution for is a viable way to reinstall the debt-free or less debt dependent property-based wealth in local communities and to revitalize the economic prosperity on Main Street throughout the country to make the majority American people rich again. FARJHOSM and SwapRentSM were designed to accomplish just that. If the incumbent Administration officials could not understand and handle this, certainly the new generations of aspiring politicians should take heed of it before it is too late for our country's economic future.

10. Creating a home equity bubble using equity sharing methods, not debt, like how Silicon Valley blew up tech company stock market bubbles

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Ben Bernanke and the Federal Reserve team please step aside, Silicon Valley please step up. We need to create some equity bubbles, not debt bubbles, to re-inflate our national economy in order to save our economic future. In particular, the national policy makers need to learn and use the equity bubble building techniques that the venture capitalists have been so skillfully creating wealth for themselves, their investors and the entrepreneurs in the past to apply to and to prop up the local property markets on Main Streets across the country. Most economists, policy makers and concerned citizens probably have learned by now that it is the damaged credit distribution channels, not interest rate levels, that is blocking their existing desperate attempts to re-inflate the economic bubbles using debts alone. We all know that credit is a very funny thing. It is always plenty only to those people who do not need it. Therefore rich people have access to plenty and poor people can not get any. Excess money supply made possible by low interest rates have only been making the rich even richer and hence created more and more social tension on wealth distribution equality related issues. Federal Reserve with its money pumping policies without the consideration of its negative effects of creating wealth inequality has hence been the henchman that has killed the cornerstone of the previously vibrant middle class in America. The only occasions when poor people could get credit is during the occasional irrational time of asset bubble building periods and when the credit process is being abused. When rationality returns, the supply of credit to the poor will come to a sudden halt as is what is happening now. On a further thought, this may not be a bad thing actually. Trying to reenergize the drug addicts with even more Cocaine in a desperate attempt is like kicking the can down the road to let other people solve the eventual real problems and could at most behave like a superficial temporary fix that may lead to much more expanded troubles down the road. A re-hab together with a new diet to create a new life would probably be a more prudent problem solving method. Similarly, to re-energize our national economy, we will need to focus on creating alternative ways of financing, other than debt financing, to re-inflate our economy for both the short term and long term problem fixing purposes. As once students of finance, we all know that high risk ventures are usually financed by equities, not debts since credit is often not available to those risky ventures. For example, the entire industry of venture capital in Silicon Valley is focused on equity financing, shared equity financing in corporate ownership, to be precise. That similar equity financing technique is exactly what we need now to re-inflate the home equity markets and hence our national economy. FARJHOSM and SwapRentSM related new business methods that we provide only represent a few possible more superior business methods to implement this equity sharing or appreciation sharing economic concepts to attract more equity based fresh capital to resuscitate our national economy on a free market basis. In order to make it work, the national policy makers will need to learn and understand that the goal of rebuilding our national economy could be done through these equity sharing economic concepts. It does not matter whether the governments choose to use the new FARJHOSM and/or SM SwapRent methods or not. They need to open the doors and encourage free market investors to participate in all kinds of equity sharing business methods that utilize the equity sharing concepts so that there would be enough free market capital to flow back into local


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communities across America to re-create property market led economic booms on Main Street. Using debt to blow bubbles should not be the only trick up their sleeves. It did not and will not work anyway since the credit distribution channels will not function properly in bad economic times no matter how low they make the interest rate levels to be. That is simply the nature of how credit works. On the other hand, as long as these new bubbles are not blown up through Other People's Money (OPM), i.e. debt again, it would most likely be Okay for now to get us out of the recession and unemployment for most of the 99% population. Asset bubbles are usually blown up by OPM using debt in the past. It is a dangerous bubble that could be popped because it was blown up by hot air. Equity induced asset growth could act more like a hardened molten lava. Once it is cooled and hardened, it does not have to pop or shrink back again. This is due to the simple fact that if the asset was purchased by equity without using debt, when price level declines, there would not be any involuntary, forced selling as would be the case if the assets were purchased with debt, i.e. OPM. So the way to make this policy strategy works, the governments will need to recognize the need to extend all kinds of smart and stupid property equity sharing methods on a massive scale and on a pure free market basis that include property speculators, not just to use these equity sharing concepts and methods on a limited basis to distressed home owners as a foreclosure avoidance tool only. That concept is similar to the same textbook difference in managing macro-economics vs micro-economics. We will need to use these new property equity sharing concepts and methods as a new way of doing massive macro-economic stimulus for our country and again, not just a foreclosure avoidance tool offered to limited distressed home owners on any preferential basis only. When free market based investors are aware that these proactive innovative economic stimulus policies have been understood and finally adopted by the relevant policy makers, being implemented on a massive scale and most importantly that they could also participate in, free market based fresh capital will start pouring in automatically to make America rich again. These investors would come in voluntarily simply based on their own views that the government is willing to ramp up the prices and hence a timely profit making opportunity for themselves.

11. Economic stimulus application using equity sharing methods, not debt and not tax credit, to prop up the housing market
Taking expedient economic stimulus measures to prop up the national economy as a concept is a bi-partisan issue and supported by all kinds of economists, even the most libertarian ones. The question is really on what methods to use to implement the economic stimulus activities so that the money provided could indeed stay in the local communities on Main Street long enough to create local jobs instead of immediately flowing to investment opportunities in foreign emerging markets by the Wall Street professionals. So economically,


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1. the need for economic stimulus activities to revive our national economy is agreed and accepted by all, although not agreeable on what methods. 2. the linkage between a robust local property market, i.e. increased home equity hence wealth for home owners, and local economic prosperity on Main Street is well recognized by academics and politicians. 3. using more debt to blow up more property, stock and bond market bubbles again will only be another temporary fix similar to kicking cans down the road to build up bigger problems down the road for other people to solve. 4. lowering interest rates further will not benefit the home owners and small businessmen on Main Street since the credit distribution channel has been impaired during most depressed time periods of the economy. 5. pumping more money and liquidity into the system will only benefit the rich further since only the rich has access to even more credit and therefore creating further wealth distribution inequality. 6. the rich top 1% in our society, their financial advisors, hedge funds, private equity firms and even US based multi-national corporations will use the excess dollar liquidity to invest in high GDP growth countries such as China, India, Brazil, Russia, Australia, ... etc. to further enrich themselves while weakening the status of the US as a world's superpower compared to those rising power nations. 7. the dollar liquidity created by current monetary policies conducted by Ben Bernanke and his cohorts at the Fed to date has created more jobs for foreigners than for us Americans on Main Street. and politically, 1. the bailout of big banks and Wall Street firms is both unpopular and unwise to the 99% of our population. 2. more Quantitative Easing (the various QEs) has proven to be toxic to everyone but the Wall Street professionals. 3. raising taxes could be detrimental or even fatal to the remaining careers in Washington DC for most politicians. 4. ramping up more budget deficits hoping to kick the can down the road to the next Administration has become more obvious and unpopular to the public. 5. creating jobs for foreigners through pumping out more dollars while providing low cost of fund to and making the hedge fund and private equity investment gurus richer at our country's expense has been understood by even the most economically illiterate citizens has discredited the Fed's reputation day by day. 6. destroying American jobs and killing small businesses on Main Street through a lack of competence in the current economic policy makers has created extreme inequality and has been turning our country more and more towards the left and will further the causes of many variations of the Occupy Wall Street (OWS) movements. Perhaps it is time for the economic policy makers and their technical staff members to take a serious look at how our country could use the property equity sharing concepts and the various free market based business methods developed to date as a new set of economic stimulus tools? It seems to be easier said than done. For one thing, why the economic policy alternatives


FARJHO.com 23 Corporate Plaza Drive, Suite 133 Newport Beach, CA 92660 Tel: (888) 456-8881, (949) 371-9139, Fax: (888) 315-3831 http://www.farjho.com farjho@gmail.com

using the new equity sharing concepts and made possible by FARJHOSM and SwapRentSM have not made an impact so far? Without pin-pointing where the problems are these repeated suggestions could just be further waste of efforts. 1. the equity sharing related subject matter may be deemed too technical by policy makers and their technical staff since it is new. 2. suspicion of any new innovations created by other people. 3. resistance to learn something new in order to change. 4. those people who have first spent the time to learn these new concepts and methods are still at a stage of thinking about equity sharing's micro level application for foreclosure avoidance for distressed home owners only. 5. few people so far until this date have realized the importance of connecting these new property equity sharing concepts and methods with the macro level application to perform massive economic stimulus on either a national or a local level that would, on a free market basis without government's monetary assistance, cover distressed home owners, big and small property speculators as well as any other free market based investors alike. Let's hope the presidential candidates for 2012 would take a more serious consideration of using these new innovative economic policy applications of the equity sharing concepts and methods to solve our country's economic problems in order to acquire a timely political advantage for themselves in the up-coming election. ===================== References: 1. "First Online Exchange for Real Estate Futures", FOW (Futures and Options World) Week (Page 4), September 2002. 2. "The SwapRentSM Transactions for Homeowners, HELM and FARM - A New Alternative Housing Finance System", by Ralph Y. Liu, Journal of Housing Finance International (HFI), International Union for Housing Finance (IUHF), December 2009. 3. "HOPE for Homeowners Consumer Disclosure and Certification Form", U.S. Department of Housing and Urban Development, October 1st, 2008. 4. "Taking Aim at the Mortgage Tax Break", by David Kocieniewski, New York Times, November 12, 2010. 5. "Programs of HUD - Major Mortgage, Grant, Assistance, and Regulatory Programs", U.S. Department of Housing and Urban Development, 2006. ======================= Ralph Y. Liu President, CEO InvestorsAlly, Inc. 23 Corporate Plaza Drive, Suite 133 Newport Beach, CA 92660 Tel: 1-888-388-5432 x 888 Fax: 1-888-315-3831


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