An open letter to the us treasury regarding the recent discussions with nar, nahb and fdic on swap rent swaprent blog

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10/16/2010 An open letter to the US Treasury regarding the
recent discussions with NAR, NAHB and FDIC on SwapRent
Date: Sat, 16 Oct 2010 14:42:30 -0700
To: Jeffrey Goldstein
From: Ralph Liu
Subject: Recent discussions with NAR, NAHB and FDIC on SwapRent

Dear Mr. Goldstein, Deputy Treasury Secretary for Domestic Finance,

bcc: relevant Administration, State and Congressional colleagues

I hope you and your colleagues have had a chance to review the information I sent to you on August 28th.

Here below is some information regarding our efforts to work with industry groups and some government
agencies to help revive the property markets, establish a new alternative housing finance system and to help our
country restore our economic prosperity. Please kindly review again the attached articles or the recent blog post
by Larry Doyle for an executive summary:

http://www.senseoncents.com/2010/08/alternative-housing-finance-how-does-swaprent-work/#more-22025

Although everybody relevant from different levels of governments, NGOs and academics around the world we
have spoken to within the past few years who have studied the SwapRent proposal thought it would make great
sense for the US government to take immediate action on it. Many others who may have a role in its
implementation seem to like to pass the ball back to your court, citing potential political obstacles. Please feel
free to let me know if you would like to see what others say if that may be important to you and your colleagues.

It has been over 3 years since I first presented our SwapRent proposal in July 2007 to Treasury, the Fed and the
various departments and agencies of the Administration before the financial crisis started. At this juncture, it is
getting more and more costly day by day to continue to risk our country’s future on those conventional monetary
or arcane fiscal economic stimulus policies that have been proven to be not working now.

Piling up more debts and flood the market with more easy credits in those old conventional monetary and fiscal
policies (which caused the current troubles to begin with) may have worked once upon a time in history for some
rich countries or countries with real competitive productivity in the past (including the US) but probably not for
swaprent.com/…/10162010-an-open-let… 1/10

some governments with a broken coffer and bloated debt obligations now. Those desperate attempts to put
down more chips from borrowed money on the gaming table trying to gambling back all that has been lost remind
people of those rogue traders who eventually brought down the banks. The simple truth is that no one has access
to unlimited borrowed capital to keep repeating the games and oftentimes the apocalyptic judgement day
beckons way before lady luck does.

As mentioned below, social sciences evolve with innovations just like the technology world would. Governments,
academics and private sectors may need to have an open mind to keep up with the time and think outside the
box. People need to wake up and think straight that we are not in the 30′s anymore. Further delay in adopting
alternative innovative approaches may certainly create irrevocable consequences to our country’s economic
future. History will tell.

I do hope that I may be saying something you and your colleagues already know and that you may have some
other credible plans on your own but for better political transparency and accountability, would you and your
colleagues at both the Treasury and at the Fed kindly consider providing a public stance on these over 3-year old
SwapRent related proposals to the Administration, as requested by the leading industry groups below? Thanks
again.

P.S. Please kindly focus on the merits and the execution details of the SwapRent proposal itself, not other
tangential considerations. I apologize for the somewhat impatient tone of this message and I have no intention to
offend anyone, just a simple desire to help save our country’s economic future with your assistance on actual
actions or an open democratic debate if inactions.

==============
Date: Fri, 15 Oct 2010 09:30:51 -0700
To: Lawrence Yun
From: Ralph Liu
Subject: RE: Recent discussions with NAHB and FDIC on SwapRent
Cc: Jerry Giovaniello, Cliff Niersbach, Kevin Milligan, Paul Bishop, Jed Smith

Sure Larry. I will send you some more relevant info in the next email.

Within the past few years since July 2007, we have received various comments from the Fed, Treasury Dept, the
Administration agencies, state governments, industry groups and many foundations and academics on their views
and stance on the SwapRent proposal. Everybody seems to have been waiting for the others to move first in the
past few years. By now it seems we could gather enough critical mass and momentum to move forward. We may
just need some strong leadership from relevant industry groups.

============
At 09:01 AM 10/15/2010, Lawrence Yun wrote:

Mr. Liu,

Thank you for sharing your idea. It is intriguing and could help the market. However, at this time, we do not
believe it can gain political transaction. I would like to know of response you get from the Treasury Department
on this topic. Thank you again for sending.

Best regards,


Lawrence Yun
Chief Economist and SVP of Research
National Association of REALTORS

From: Ralph Liu [mailto:ralph.liu@swaprent.com]
Sent: Friday, October 15, 2010 2:24 AM
To: Dale Stinton
Cc: Vicki Cox Golder; Ron Phipps; Moe Veissi; Jim Helsel; Vince Malta; Brooke Hunt; Jerry Giovaniello; Cliff
Niersbach; Kevin Milligan; Lawrence Yun; Paul Bishop; Jed Smith
Subject: Recent discussions with NAHB and FDIC on SwapRent

Dear Mr. Stinton,

Here below are some recent discussions that I had with NAHB and with FDIC. I hope you and your colleagues
may also find it helpful to understand where SwapRent and FARJHO stand in effectively applying the simple
shared equity related economic concepts and how it could be used to help restore our country’s economy. Since
real estate market is regional by nature with supply and demand limited to a defined geographical area, the
desired implementation economic effects could be accomplished in any city or county on a standalone basis to
create jobs and restore the local economic prosperity. For your kind review and considerations.

Would your organization be interested in getting involved? Thanks again.

=================

Date: Thu, 30 Sep 2010 16:54:41 -0700
To: “Ledford, David”
From: Ralph Liu
Subject: The new alternative home ownership structure (FARJHO) and the housing finance system (SwapRent)
that could also create jobs and reduce deficits
Cc: “Howard, Jerry”, “Catalde, Brian”, “Dunn, Sandy J.”, “Robson, Joe”, “Jones, Bob”, , “Logan, Mary”,
“Crowe, Dave”,

Dear David,

Thank you for your feedback and comments today on my email to Jerry and other board members. I am glad to
learn that there are more and more people who have come to the realization of the power of these new economic
concepts.

Shared equity and/or shared appreciation related generic concepts are not new and they have mostly been
practiced in the UK for over 30 years. Most recently in the US and Australia we had also seen some new
ventures back in 2007 trying to introduce those same old methods before the mortgage crisis started. These
concepts have not caught on simply because those primitive business methods engaged in the UK, Australia and
the US to provide the economic benefits to consumers were not good enough. There existed plenty of room for
new innovations on new business methods in this field back then, similar to the opportunity of how Steve Job’s
iPhone could potentially replace Gordon Gekko’s Motorola platform shoe sized cell phone. Social sciences
evolve with innovations just like technologies would.


That was exactly the reason why the deliberate research efforts of the SwapRent method, its subsequent
simplified version of FARJHO and their related various new mortgage instruments and markets were originally
embarked on and were subsequently invented back in 2006. These events were chronicled in the original patent
applications back in 2006 and many subsequent academic publications or in many leading trade journals listed on
the SwapRent.com web site. In short, SwapRent and FARJHO represent the more mature and the latest
developments in the evolution spectrum of the shared equity or shared appreciation concept to own homes.

Without the crisis in 2008 few would pay attention to and appreciate the timely new economic utilities of these
new inventions of real business methods to make the simple shared equity concept practical and possible but
these new inventions were not created in 2006 to simply anticipate and cater to some particular needs of solving
the crisis, such as rescuing the underwater houses as you had brought up. These new inventions together would
provide an alternative housing finance system with many potential application opportunities that have very broad
implications to our capitalism society.

The beauty of all these inventions is that these new economic benefits would be made available to everyone on a
pure free market basis. Nobody would force anybody to accept and give up anything unwillingly. Consumers
make their own choices for their own good. If some folks do not like some particular applications for ideological,
religious, opinionated, individual preferences and tastes or any other reasons, they could simply skip those
applications and move on with those that would make more sense to them in their particular situations.

Below is some more recent info on what I have shared with some of the government agencies similar to what I
have shared most recently with Jerry et al before. Please feel free to let me know if you would like review some
more detailed comments from the senior executives at our federal, state governments, banks, home builders,
Wall Street firms, congressional staff members, G7 and other central banks in Asia, Europe and the Middle East
as well as many think tanks and leading academics around the world regarding our advanced discussions within
the past few years on the potential applications of SwapRent and FARJHO to date to implement those economic
ideas in their countries.

Regarding the investor’s sentiments in a particular country, the whole idea of the proposed economic
implementation strategy is to make it a self-fulfilling prophecy without using debt. The more free market
participation the more likely the property prices will indeed rise, hence the more likely the economic prosperity
will be brought back up, hence the more likely the investors will make money and hence the more likely investors
will flock to offer to provide the SwapRent cashflows to property owners who are willing to do this exhange of
cashflows for appreication potential. It may be similar to how the Fed uses monetary policy to lower the interest
rates to “stimulate the economy” or to “corner the property market up” in the past but there is no debt involved
this time around.

Now that many people have understood the powerless state of the conventional monetary policy to channel
credit down to the small businessmen and property owners in the local communities across America in order to
restore our economic prosperity, perhaps it may be time to consider using some new innovative equity based
home financing methods such as SwapRent to “stimulate the economy” or to “corner the market up”. These
concepts and specific detailed methods on what the government or central banks could do are described in the
HFI-IUHF paper that I have published.

To answer your questions, due to the simplicity of the new variation of the FARJHO structure we have received
tremendous consumer demand at http://www.InvestorsAlly.com . Since the scale of the more sophisticated but
much more powerful SwapRent project at http://www.REIDeX.com may be much bigger than a typical

entrepreneurial project could handle due to the current crisis and public perception, we are very eager to work
with organizations like yours to re-design it and set it up to benefit our country for the greater good as explained
to the government agency below.

We would be quite happy to let these not-for-profit organizations take the lead in coming up with a new structure
that may make sense for our country. If it is on a pure NFP basis, foundations such as MacArthur, Ford and
Milken Institute, Peterson Institute etc. which we have been in touch with in the past few years may participate as
well let alone some of the government agencies if some credible organization like yours is willing to take the lead.

If it is on a commercial basis, each home builder member of your organization could simply become a share
holder of REIDeX, Inc. and your organization could play a leading coordination role in making this happen for
the benefits of your members while doing good to the homeowners and our society in general at the same time. If
this is of interest to you please feel free to make any other suggestions that your board members may feel more
comfortable with.

Please do not hesitate to call me for a more in-depth discussion. Thanks again.

============

At 03:04 PM 9/30/2010, Ledford, David wrote:

Mr. Liu,

Jerry Howard asked me to respond to the information you provided on the SwapRent and FARJHO programs.
These are interesting variations on the concepts of shared-equity financing and lease-to-own homeownership
programs that have been employed in various forms for a number of years. I am interested in following up with
you to get more information on the activity you are seeing with your versions of these programs. NAHB is
strongly interested in finding effective means of reducing the overhang of unsold homes and exploring effective
means to do so.

I do have reservations on the prospects for gaining support for using the SwapRent program as a means of
addressing the problem of underwater mortgages and related mortgage foreclosures. The SwapRent program is
innovative in providing a cash flow to homeowners in exchange for a piece of the future upside on prices, with the
goal of increasing consumer consumption and stimulating the economy. However, attempting to address the
foreclosure crisis by bringing in equity to upside down borrowers would require large federal and/or private
subsidies, which are not likely to be forthcoming in the foreseeable future. It seems there would be particular
difficulty in convincing investors to make such a major bet on appreciation in home values in an ongoing period of
price instability, and the current political tarnish on programs aimed at expanding homeownership would greatly
impede efforts to gain legislative support for providing public funds for such a program.

In short, the objectives of such a program are at odds with current economic and political perceptions and,
therefore, seem unlikely to be achieved. While the program may have some potential to be utilized over the very
long run, I don?t see it getting any traction any time soon.

Thanks for sharing this information with us.

Best regards,


DAVID L. LEDFORD
National Association of Home Builders

============

Date: Wed, 08 Sep 2010 12:59:43 -0700
To: “Krimminger, Michael H.”
From: Ralph Liu
Subject: Re: FW: SwapRent as a new alternative economic policy management tool for governments
Cc: “Rowley, Clare D.” , “Eliopoulos, George” , “Bair, Sheila C.”

Thanks for your note Mr. Krimminger. Most Americans would probably prefer to see these new services remain
entrepreneurial and run by private sectors to create jobs based on pure free market principles, rather than being
run and managed by the government itself.

The role that agencies such as FDIC could get involved actively is probably to become the active users of
SwapRent to more efficiently and effectively accomplish its various missions that you have described below. As
you probably have already understood that there is no need to come up with the money and provide any subsidy
as a give-away in the SwapRent system. Governments as users only play the role as a facilitator or a middleman
to channel the capital from the private sectors to solve the problems of distressed loans held by the banks, the
same economic role of a middleman that the GSEs were originally supposed to play, irrespective of their failed
methods and financing structures.

As a potential active user of SwapRent that could help taxpayers benefit directly from these new advantages that
SwapRent may provide in helping manage the failed banks, perhaps you would consider staying closely involved
in our quest to make this happen with the various government entities, or even taking a more active role to
champion it.

I realize that due to the scale of the program, unless the government stays behind the project of creating an active
market for SwapRent contracts it may not give people the necessary degree of comfort to start using these new
innovative services to help restore our country’s economic prosperity. I am quite willing to contribute whatever it
may be necessary to make it work for the greater good.

I will continue to follow up with Treasury Department and Congressional members to see if somebody is willing
to take the opportunity to champion this project for the greater good. The reward for them would go beyond
helping them accomplish their political goals in providing a timely public service that would really help many
people in need. History will certain record their pro-active contributions when the tides of economic tsunamis
were curbed by their pioneering efforts to implement these new innovative solutions. They might deserve a Nobel
Peace Prize much more than some other leading politicians did!

Meanwhile if you and your colleagues feel you might be able to further assist us in directing us to the exact proper
people within the Administration to help make it happen together, please feel free to let me know. Thanks again.

==========
At 11:57 AM 9/8/2010, Krimminger, Michael H. wrote:

Mr Liu,


I am the Deputy for Policy to Chairman Bair. She asked me to respond to your email once we had had an
opportunity to review your proposal.

We do appreciate your contacting us. The FDIC welcomes innovative solutions to the current home foreclosure
crisis. Your proposal is thorough; however the FDIC is not the appropriate federal agency to facilitate the
creation of such an exchange. While the FDIC is working with many borrowers to address their distress on loans
made by failed banks, we are seeking to recover value or sell those loans and are not in a position to subsidize
them as suggested in your proposal. We would suggest that you follow-up with Treasury to determine if they are
considering additional programs to address broader housing distress. Thank you again for your proposal,

Best regards,
Michael Krimminger
Deputy to the Chairman for Policy
Federal Deposit Insurance Corporation

From: Bair, Sheila C.
Sent: Monday, August 30, 2010 1:01 PM
To: ‘Ralph Liu’
Cc: Rowley, Clare D.
Subject: RE: SwapRent as a new alternative economic policy management tool for governments

Thanks. Will take a look.

From: Ralph Liu [ mailto:ralph.liu@swaprent.com]
Sent: Wednesday, August 25, 2010 2:07 PM
To: Bair, Sheila C.
Cc: Rowley, Clare D.
Subject: Fwd: SwapRent as a new alternative economic policy management tool for governments

Dear Chairman Bair,

For your kind review and comments. Thanks again.

==============
Date: Sat, 28 Aug 2010 14:39:10 -0700
From: Ralph Liu
Subject: SwapRent as a new alternative economic policy management tool for governments and central banks

Dear Mr. Goldstein, Deputy Treasury Secretary for Domestic Finance,

bcc: relevant Administration, State and Congressional colleagues

Here below is a link to a recent public blog post by Wall Street veteran Larry Doyle on how the governments
could take advantage of the SwapRent contracts to help our country de-leverage, stimulate the economy and
create jobs at the same time. For yours and your relevant colleagues further kind review and considerations.
Thanks again.


http://www.senseoncents.com/2010/08/alternative-housing-finance-how-does-swaprent-work/#more-22025

===============

Date: Wed, 18 Aug 2010 17:41:27 -0700
From: Ralph Liu
Subject: FARJHO at InvestorsAlly.com and SwapRent at REIDeX.com

Dear Mr. Goldstein,

I wonder whether you have been forwarded information on SwapRent in the past by many of your colleagues at
the Treasury Department which I have corresponded with since July 2007. I have also visited some of the
relevant Treasury staff members in their DC office during the previous Administration back in October 2008
while I was invited to DC by the Milken Institute to speak at their Housing Finance Innovations Lab.

In light of the conference on the future of housing finance yesterday, I would like to give you an update and an
introduction to the FARJHO services as a free market based alternative home ownership structure offered at our
recently spun-off new venture InvestorsAlly, Inc. ( http://www.InvestorsAlly.com ). These new services could
also present a great way for fixer-upper or distressed real estate investors/flippers in either a REIT or a private
equity real estate fund to have a quicker exit strategy by offering a genuine housing affordability to homeowners.
Some of the more sophisticated investors may also be interested in the more advanced SwapRent-based
arbitrage trading strategies of distressed mortgages/trust deeds on commercial properties as described below.

The simple way to describe the business model for InvestorsAlly is an Internet-based peer-to-peer marketplace
for aspiring home owners and would-be property investors to meet and negotiate, combined with conventional
real estate franchisee brokerage offices across the country. Although it has an Internet based operation for
gathering and capturing investors, the actual operations of the property transactions for homeowners will be done
by the local franchisee agents across the country in shopping centers or office complexes in each city to help
conclude these all equity deals to buy homes.

Although there are a lot of info on our web sites already, here below is a summarized up-to-date introduction to
our FARJHO and SwapRent services from an academic angle as well as some files (referred to as attached) of
recent relevant industry press coverage.

From an economist’s point of view, you may also be interested in learning more about how central banks and
governments could use SwapRent as the third alternative economic policy management tool, in addition to the
conventional monetary and fiscal policies in order to finally be able to de-leverage and stimulate at the same time.

http://swaprent.com/blog/2009/12/06/12062009-how-small-business-owners-could-use-swaprent-transactions-
to-create-jobs-at-grassroots-level/

http://swaprent.com/blog/2009/11/01/11012009-swaprent-rates-offer-another-new-dimension-for-
governments-to-perform-economic-stimulus-without-resorting-to-lowering-interest-rates-only/

http://swaprent.com/blog/2009/10/13/10132009-how-swaprent-program-could-reduce-the-re-default-rate-
and-create-local-neighborhood-prosperity/


Please feel free to let me know if you have any questions or comments regarding our efforts to develop these
new innovative home ownership and housing finance system alternatives. Your help and participation would be
highly appreciated. Thanks.

==============
Regarding the academic research of SwapRent as an alternative new housing finance system that I have been
working on for the past few years, please see the recently published article (see attached) on SwapRent at the
Housing Finance International of IUHF (International Union for Housing Finance, http://www.housingfinance.org
).

We have also created a much simpler, non-derivatives based, new joint home ownership structure call FARJHO.
The launch of the new services may have a potential impact to our nation’s housing market. Please see the recent
news coverage in Hedge Fund Alert. More info is available at our recently launched new peer-to-peer multi-
lingual web site http://www.InvestorsAlly.com .

In the current market, through FARJHO, property investors as InvestorsAlly’s customers could expect around 5
to 7% or even higher current dividend yield while waiting for the market recovery and further price appreciation
of US residential properties without worrying about vacancy or excessive annual operating expenses. The total
return could be quite significant due to the potential price appreciation from many distressed and foreclosed
properties.

The more popular this type of non-debt, fractional interest equity investment to attract fresh capital injection from
around the world to jointly own homes becomes, the more likely the property market will indeed be restored to
its previous value with a “non-leveraged stable growth” sooner. Homeowners would get to enjoy the social
stability at the same time.

Academically, one of the main economic benefits that both FARJHO and SwapRent contracts, each in their
different ways, provide to investors is to make Single Family Residences (SFR) income producing assets (with a
stable positive yield like that of owning a rental apartment) and hence made investable by professional institutional
investors. It would be a great way for pension funds and insurance companies to diversify their portfolios by
extending the investment choices into currently the world’s largest asset class through these new innovative
investment vehicles.

The state, county (and city) public employees and teachers pension funds would be the best candidates to
become the anchor local institutional property investors to help homeowners to co-own homes through the new
FARJHO concept in order to foster local economic revivals and continuing prosperity. They could of course
resell those FARJHO LLC member interests to other free market investors at any time in order to regenerate
and scale up the scope of available capital. Attracting fresh capital from around the world this way to local
communities could certainly help the state, county and city governments fix their current budget deficits under a
free market mechanism.

Policy-wise, the simple new economic concept is that people would need to start thinking outside the box,
borrowing money to own homes should not be the only way to own homes. Promoting homeownership for social
good purposes could also be accomplished through partial equity sharing, just like how corporate ownership has
evolved in the last few centuries with the development of a stock market in each country. It is about time that we
should seriously treat equity financing and developing a tradable secondary market of home equities as a viable
way to promote homeownership.

In addition, with the introduction of the separation of shelter value from the economic value (or usufruct value
from the investment value) of owning a real estate property by the new SwapRent related methodologies and its
secondary market REIDeX, boom and bust cycles created by the investment value of properties and
exacerbated by the abuse of lending/borrowing could easily be avoided and homeowners could get to enjoy the
social stability as long as they stick to the shelter value part of their homeownership.

Although the SwapRent related efforts were originally designed for both residential and commercial properties,
due to the housing related residential mortgage crises, so far most of the attentions have been focused on
developing applications primarily from a residential property owner’s perspective. The application opportunities
are indeed equally available for commercial property owners to enjoy similar economic benefits. We have only
recently started an effort to offer these services to the commercial real estate investors and distressed mortgage
assets holders. The most relevant article that talks about the trading of distressed mortgages is the attached article
published by SCI (Structured Credit Investors). I have also attached a recent article on SwapRent by National
Mortgage News. The three relevant web sites are listed below in my signature file.

For examples on how to use SwapRent to help trade distressed mortgages or trust deed notes on commercial
properties and CMBS, please kindly review the most recent blog entries on 4/20/2010 and 3/15/2010 at the
following link. http://swaprent.com/blog/ or more conveniently,

http://swaprent.com/blog/2010/04/20/04202010-examples-on-swaprents-commercial-property-applications/

http://swaprent.com/blog/2010/03/15/03152010-commercial-property-applications-of-swaprent-and-pelm/

One interesting concept to note is that the residential SwapRent and FARJHO applications on Single Family
Residences basically make SFR similar to investable income-producing assets like multi-family apartment
complexes and should hence be treated like any other commercial properties for institutional investments going
forward.

Tags: Economic Management Policy, FDIC, Fiscal policy, Jeffrey Goldstein, Monetary policy, NAHB, NAR,
Rogue Trader, SwapRent, Treasury Department

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