1 / 9

HAPNTMs: Innovative Solutions for Modern Mortgage Markets

This presentation outlines the challenges faced in today’s mortgage markets, particularly for low and moderate-income borrowers. It introduces Home Appreciation Participation Notes (HAPNTMs) as an effective origination and workout tool. HAPNTMs allow homeowners to capitalize on future capital gains, resulting in more affordable mortgages with lower loan-to-value ratios and reduced default risks. Through examples, it demonstrates how HAPNTMs can help both new borrowers and troubled homeowners stabilize their financial situations while minimizing losses for lenders.

leo-valdez
Download Presentation

HAPNTMs: Innovative Solutions for Modern Mortgage Markets

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. HAPNTMs: An Effective Tool for Today’s Mortgage Markets Presented to: Nebraska Investment Finance Authority 2010 Housing Innovation Marketplace by IFE Group January 26, 2010

  2. Agenda • Current Challenges • HAPNTM as a Solution • Example: HAPNTM as Origination Tool • Example: HAPNTM as Workout Tool Page 1

  3. Major Challenges in Today’s Mortgage Markets • New Originations - Mortgage credit is still hard to obtain, especially for low/moderate income borrowers, and other than the strongest borrowers • Troubled loans - Millions of homeowners have negative equity in their home and/or a mortgage they can no longer afford as house prices and incomes have fallen  in jeopardy of default and losing their home • Troubled borrowers have few resources/alternatives to contribute to working out their troubled loans • Lenders have the difficult choice of: • Restructuring the loans at great expense, with significant risk of re-default • Foreclosing on the loans • Selling the loans at a very low price, absorbing large accounting and economic losses Page 2

  4. HAPNTM as a Solution • Homeowner capitalizes future capital gain in housing, applying it to loan UPB, resulting in: • Low LTV, affordable mortgage • Future house price risk shifted to investors more capable of bearing it • Low probability of default/re-default • NPL owner now has additional resources with which to restructure loan • Market value (or spread) of transforming a nonperforming loan into a performing loan • Value obtained from the HAPNTM Page 3

  5. What are HAPNTMs? • Characteristics of HAPNTMs (Home Appreciation Participation Notes – patent pending) • A zero coupon bond as a 2nd lien on the house • 10-year maturity due on change of ownership • Payoff is computed by share of difference between initial and final automated appraised house value • All negative HPA borne by HAPNTM investor • Require homeowner to retain no less than 10% of HPA Page 4

  6. Example: HAPNTM as Origination Tool With HAPNTM: $137K: mortgage $ 10K: downpay +) $ 53K: HAPNTM $200K: House Traditional: $160K: 1st mrtg $ 30K: 2nd mrtg $ 10K: downpay $200K: House Annual FRM 30 payment = $9,427 ($137K at 5.5%) Income requirement = $28,564 (33% PTI ratio) Annual FRM 30 payment = $14,191 ($160K at 5.5% + $30K at 10%) Income requirement = $43,000 (33% PTI ratio) • INCOME REQUIREMENT REDUCED BY 34% Page 5

  7. Result of Using HAPNTM as Origination Tool • Borrower able to obtain a more affordable mortgage • Lower LTV loan  lower probability of default • Borrower protected against declines in house prices Page 6

  8. Example: HAPNTM as Workout Tool • Reduce payment to affordable level, e.g., 33% of income: $10K • With 30-year FRM at 5.5% interest rate: UPB = $147K, i.e., 72% LTV • HAPNTM is the $53K residual →implies 78% share of appreciation • Required payoff in 5 years to earn 8% return = 53 x (1.08)5 = 78 • Expected house appreciation in 5 years at 3% HPA = 200 x (1.03)5 - 200 = 32 • HAPNTM share of appreciation = (78 – 53) / 32 = 78% • NPL: • UPB = $250K • House price = $200K • Household income = $30K • Mortgage rate = 7% • Payment = $20K/yr • LTV = 125%, PTI = 68% • Exp. Loss = $125K (50% of UPB) Refinance by HAPNTM: $147K: 1st Mortgage +) $ 53K: HAPNTM $200K: House Page 7

  9. Result of Using HAPNTM as Workout Tool • Homeowner stays in home • NPL owner has written off $50k rather than losing $125k that would result from foreclosure • A new, low risk mortgage • Low LTV • Low Payment to Income ratio • Borrower still has significant stake (equity) in the home Page 8

More Related