Long Term Equity contracts replace conventional debt financing of homes with a more affordable equity capital stack structure.
This product is most suitable for homes where the debt load on the property is under 50% of the home’s value, which encompasses both homes with mortgage debt and properties that are debt free.
In a Long Term Equity contract, the homeowner and their heirs enter into a co-equity partnership with an investor who is interested in the financial behavior of the resulting equity contract for portfolio liquidity and hedging purposes because index-based equity contracts create a form of uncorrelated asset with respect to systemic externalities such as inflation.
Due to inventory shortages and supply/demand effects, home price appreciation tends to follow an independent path from the money supply related economic system, thus creating a natural hedging arbitrage opportunity.
Valshare Long Term Equity contracts are based on constant index pricing which makes them liquid and suitable for use in hedging.
Replacing Debt and Debt Service
When a homes is converted into a Long Term Equity structure, any mortgage debt is erased and some to all of the equity in the home is pledged to a contract with an average term of ten-years with auto-renewing features. This contract is then moved through a conduit process into hedge funds or asset-backed securities.
The initial investor in the Long Term Equity contributes the amount needed to eliminate the debt on the home. This amount starts the initial amount of equity capital upon which index tracking is done.
The investment contract and the homeowner’s remaining equity both share in the benefits and risk of the movement of the home price index.
The investment contract, being liquid priced, can be resold throughout the entire secondary market, creating a new form of capital for use by the financial industry; potentially scaling to $ trillions to match the hedging needs of other multi-trillion financial sectors of the global economy.
The equity piece can be repurchased by the homeowner at the index-contract price at any time.
The maintenance services fees on a Long Term Equity contract to maintain the liquid pricing computations are typically a fraction of a mortgage instrument payment, vastly decreasing the cost of home ownership servicing cost to the homeowner.