Home Appreciation Participation Notes: A Solution to Housing Affordability and the Current Mortgage Crisis

Henry J. Cassidy (), Barry Dennis () and Tyler T. Yang ()
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Henry J. Cassidy: Integrated Financial Engineering, Inc., 51 Monroe Street, Suite 801, Rockville, MD 20850, U.S.A
Barry Dennis: Integrated Financial Engineering, Inc., 51 Monroe Street, Suite 801, Rockville, MD 20850, U.S.A
Tyler T. Yang: Integrated Financial Engineering, Inc., 51 Monroe Street, Suite 801, Rockville, MD 20850, U.S.A

International Real Estate Review, 2008, vol. 11, issue 2, 126-141

Abstract: This paper introduces Home Appreciation Participation Notes (HAPNs), an innovative new housing finance tool. Housing is a commodity providing two distinct utilities: shelter and investment. Traditionally, buyers have had to purchase both elements in tandom. HAPNs allow buyers to purchase these elements individually. Thus, buyers can focus on purchasing housing units that best fit their shelter needs, investing in housing appreciation to whatever extent is appropriate for the needs of their investment portfolio. HAPNs are different from previous financing tools in three key ways: there is no payment burden until ownership of the home is transferred, the risk of housing price declines is shifted to investors, and the final payoff is indexed to the appreciation rates of local housing prices. With these three features, HAPNs considerably improve the affordability of homeownership while reducing the risk of default and avoiding the moral hazard associated with shared appreciation instruments.

Keywords: Affordable housing; Home ownership; Housing financing; Appreciation; Capital gain; Risk management; Loss mitigation; Home appreciation; Participation notes (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 2008
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