The Next Home Equity Boom

16 May 4:53pm
Posted by ToddSullivan
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Just when you thought consumer home equity induced spending was dead due to a slowing market and tightened credit standards, a new product promises to put some juice into it. REX & Co, backed by a subsidiary of AIG (AIG) has a new product that lets homeowners tap the value of their homes without taking out a loan.

The novel product gives homeowners cash for their equity in return for a portion of the proceeds from the eventual sale of the home. For instance, a homeowner who has a $500,000 home can extract $100,000 of that by giving REX 50% of the change in the home value. So, if the home is sold in 5 years for $750,000, REX receives half the increase, or, $125,000. If it sells for $600,000, they receive $50,000.

It is a break from the traditional debt based equity extraction option homeowners currently have and is available in California, New Jersey, Virginia, Florida, Washington, Colorado, New York and North Carolina. Founder Thomas Spoonholtz expects it to be available nationwide within a couple of years.

He aims to have it sold through mortgage brokers with up to a 2% of proceeds fee and homeowners will have to commit to hold the home for a set number of years or face "early exit" fees or 5% to 25%. This approach will appeal to retirees looking to maximize the extraction of equity from their homes without incurring interest payments. Younger borrowers will like the fact that their debt ratios will not increase and the effect on their credit scores will be non existent. It will also allow for higher borrowing limits since the home will be held for a minimum time frame, increasing the equity available.

What this product essentially does is allow current homeowners to borrow "future equity" in their homes and not pay interest charges.
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About

ToddSullivan

A Massachusetts based value investor, I look for companies whose current valuation is at a discount to their true value. When I purchase a stock, my typical holding period is several years. I consider buying a stock purchasing a piece of a business. I am confident once I make a decision to buy that eventually the market as a whole will recognize the true value of the business and value it accordingly. It may take 1 month, 6 months or a year, but if I buy it at enough of a discount to its true value my results will be (and have been) superior to the market as a whole. Of all the disparate investing disciplines, value investing has stood the test of time. The great investors of have all been value investors. Warren Buffett, Ben Graham, Bill Ruane (Sequoia Fund), Bill Miller and Wally Weitz, all have consistently outperformed the market for decades by using various forms of value investing. Currently I am a contributing writer to Seeking Alpha, Vinvesting.com, The Stock Masters and Value Investing News. Posts have been reprinted in The Wall St. Journal, Yahoo Finance, Google Alerts, Google Finance, TheStreet.com. 24/7 Wall St. and Topix.net.

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