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HES presentation at ASF in Las Vegas

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Information about HES presentation at ASF in Las Vegas
Finance

Published on October 30, 2008

Author: guestb2de1

Source: slideshare.net

Description

This is the presentation the John O'Brien, Managing Partner at Home Equity Securities, gave at the American Securitization Forum in Las Vegas.
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Securitization of the Single-Family, Owner-Occupied Home Equity Market John O’Brien Nelson Schneider Home Equity Securities LLC March 2008

The Potential The U.S. housing market is around $20 trillion — even larger than the U.S. stock and bond markets Institutions have had very limited access to this enormous equity market Presently, homeowners access equity in their homes only through debt instruments Development of an equity alternative is necessary to provide a logical supplement and support to debt-financing

The U.S. housing market is around $20 trillion — even larger than the U.S. stock and bond markets

Institutions have had very limited access to this enormous equity market

Presently, homeowners access equity in their homes only through debt instruments

Development of an equity alternative is necessary to provide a logical supplement and support to debt-financing

Opportunity Provide new financing opportunities for homeowners and developers Create a capital market for fractional-equity securities in single-family, owner-occupied residential real estate Provide a new investment asset class for institutional asset managers and investors Offer a solution to Subprime workouts

Provide new financing opportunities for homeowners and developers

Create a capital market for fractional-equity securities in single-family, owner-occupied residential real estate

Provide a new investment asset class for institutional asset managers and investors

Offer a solution to Subprime workouts

Today’s Situation Home ownership is “all-or-nothing” Financing is debt only; it’s as if equity-share ownership hadn’t been invented Home price valuation is without meaningful market discipline Homeowner delinquency forces foreclosure; “downsizing in place” is not possible

Home ownership is “all-or-nothing”

Financing is debt only; it’s as if equity-share ownership hadn’t been invented

Home price valuation is without meaningful market discipline

Homeowner delinquency forces foreclosure; “downsizing in place” is not possible

How Did We Get Here? Home ownership traditionally has been a family affair, generally supported with debt — but rarely with a commercial equity investor Not until recently — when consumer’s began to target home equity for wealth accumulation (accompanied by soaring debt loads) — has fractional home equity become an important option

Home ownership traditionally has been a family affair, generally supported with debt — but rarely with a commercial equity investor

Not until recently — when consumer’s began to target home equity for wealth accumulation (accompanied by soaring debt loads) — has fractional home equity become an important option

Alternative Solutions Alternative structure debt instruments Reverse Mortgages Hybrid Structure/Asymmetric payoff instruments Shared Appreciation Mortgages Home-Equity, Fractional-Interest (HEFI) security – a standardized, stand alone, equity security innovation

Alternative structure debt instruments

Reverse Mortgages

Hybrid Structure/Asymmetric payoff instruments

Shared Appreciation Mortgages

Home-Equity, Fractional-Interest (HEFI) security – a standardized, stand alone, equity security innovation

What is a HEFI? Home-Equity, Fractional-Interest security Stand-alone equity security, separate from mortgage Allows homeowner to offer fractional ownership while retaining homeowner benefits Offers investors passive equity investment in single-family, owner-occupied market Facilitates fungibility, valuation, and transferability; can be pooled into Collateralized Home-Equity Obligations

Home-Equity, Fractional-Interest security

Stand-alone equity security, separate from mortgage

Allows homeowner to offer fractional ownership while retaining homeowner benefits

Offers investors passive equity investment in single-family, owner-occupied market

Facilitates fungibility, valuation, and transferability; can be pooled into Collateralized Home-Equity Obligations

Collateralized Home Obligations (CHOs) Offer diversified Single-Family, Owner-Occupied (SFOO) equity exposure Could be traded OTC or on an exchange Indexes of CHOs would allow price discovery Derivatives on these Indexes allow hedging

Offer diversified Single-Family, Owner-Occupied (SFOO) equity exposure

Could be traded OTC or on an exchange

Indexes of CHOs would allow price discovery

Derivatives on these Indexes allow hedging

Benefits of HEFIs and CHOs Flexible financing/diversification for established homeowners Market expansion for developers and resale market Foreclosure abatement for distressed homeowners Recovery vehicle for mortgage restructuring Investment opportunity for asset managers and institutional investors

Flexible financing/diversification for established homeowners

Market expansion for developers and resale market

Foreclosure abatement for distressed homeowners

Recovery vehicle for mortgage restructuring

Investment opportunity for asset managers and institutional investors

Are Investors Ready for HEFIs and CHOs? National and regional housing indices Spot price proxies Listed futures and options OTC products

National and regional housing indices

Spot price proxies

Listed futures and options

OTC products

Fed Chairman Bernanke March 4, 2008 “ A recent estimate based on subprime mortgages foreclosed in the fourth quarter of 2007 indicated that losses exceeded 50 percent of the principal balance… ” “ The fact that many troubled borrowers have little or no equity suggests that greater use of principal write-downs or short payoffs, perhaps with shared appreciation features , would be in the best interests of both borrowers and lenders.”

“ A recent estimate based on subprime mortgages foreclosed in the fourth quarter of 2007 indicated that losses exceeded 50 percent of the principal balance… ”

“ The fact that many troubled borrowers have little or no equity suggests that greater use of principal write-downs or short payoffs, perhaps with shared appreciation features , would be in the best interests of both borrowers and lenders.”

Home Equity Securities LLC Attributes Developed the HEFI security and related methodologies Holds 7 enabling patent filings that underpin intellectual property Uniquely positioned to support an accelerated commercial launch of the SFOO equity capital market Boasts experienced team that combines professionals from Wall Street and academia

Attributes

Developed the HEFI security and related methodologies

Holds 7 enabling patent filings that underpin intellectual property

Uniquely positioned to support an accelerated commercial launch of the SFOO equity capital market

Boasts experienced team that combines professionals from Wall Street and academia

Home Equity Securities LLC Near Term Commercialization: Adapted HEFI Program for Use in Subprime Workouts Conferring with interested Federal, State and commercial entities intrigued by HES’s Model Ready to License Out HES Program

Near Term Commercialization:

Adapted HEFI Program for Use in Subprime Workouts

Conferring with interested Federal, State and commercial entities intrigued by HES’s Model

Ready to License Out HES Program

HES Subprime Workout Plan Reduce Mortgage Size to Meet Homeowner’s Ability to Pay Dollar Differential from Old Mortgage Converts to Equity Owned by Banker Banker Now Has Performing Mortgage and Potential Upside if Home Price Rises Homeowner Stays in Home

Reduce Mortgage Size to Meet Homeowner’s Ability to Pay

Dollar Differential from Old Mortgage Converts to Equity Owned by Banker

Banker Now Has Performing Mortgage and Potential Upside if Home Price Rises

Homeowner Stays in Home

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