Homeownership doesn't have to be 'all-or-nothing.'
Home prices in the US are in free fall. As long as that's the case, millions of homeowners will face the risk of foreclosure – and the wider economy will suffer. Therefore, stabilizing the housing market effectively and equitably is essential. But it's going to take more than lowering mortgage rates, passing stimulus packages, buying toxic mortgage-backed securities, and freezing foreclosures.
What's needed is a groundbreaking approach that prevents foreclosures and increases the affordability of the existing housing stock, thus increasing housing demand. Both of these issues can be addressed with a simple, yet radical, innovation: fractional homeownership.
Currently, home purchases are financed entirely with the owner's personal capital (down payment) and debt (mortgage). Though no law forbids it, there is no opportunity for homeowners to get external equity financing, in which a passive investor shares in the financial gains and losses of the home's value.
People either rent or own their residence – and moving from the former to the latter is a major leap. To make that jump in recent years, consumers often turned to exotic mortgages, which exposed them (and lenders) to great risk. Fractional homeownership solves that problem. It bridges the gulf between renting and owning, providing an array of financing structures to achieve the American dream.
Fractional home ownership allows home financing to include a minority passive equity partner. With such a partner, homeowners can "right size" their financial obligation by owning less than 100 percent of their home while maintaining the material (and tax) benefits of ownership. With a standardized fractional home ownership security, institutional investors could and would be that partner.