4 ms·
So who gets to hold the title? The home owner or does it change hand when they extract some equity? If not the owner, how do they ensure the get their cut?
by segmondy 7y ago
So who gets to hold the title? The home owner or does it change hand when they extract some equity? If not the owner, how do they ensure the get their cut? liens? How do they make sure the home owner doesn't extract equity multiple times from different groups? What if a life changing event happens that changes the plan of the owner from wanting to sell on the agreed date and they want to stay for a few more years? Will they be forced to sell? What if the market tanks and the house is underwater? Too many ways this can go kaput. IMO, keep things simply stupid. Don't mess with your home equity. It's not an ATM.
- zelly 7y agoApparently it's a call option on x% of the equity of your house expiring in 10 years. You are short 1 call contract but receive the premium upfront. If you sell your house before 10 years, you have to buy back the call option from Patch the company (more or less than you received depending on how the value changed). Say you use Patch for your 1MM house, then sell it for 1.5MM 8 years later. You will be on the hook for 23%[1] or $345k. As a homeowner, you're not really selling any equity, just a derivative based on your house's equity. If you don't sell by 10 years, I assume Patch the company can foreclose on your house if you can't deliver in cash 23% of your house's appraised value (how else would this be investable otherwise?). The only way to be short is to own a house. But once these contracts are securitized, it's one derivative away from becoming shortable without owning the underlying (house). I'm sure investors taking the other side of these contracts will want insurance. Then you're back to synthetic CDOs. I really hope this doesn't take off. [1] https://www.patchhomes.com/how-patch-works https://www.patchhomes.com/how-patch-works