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Applying  the Equity Guarantee Model  to Resolve Today’s Crisis
In 1979, Lale Guneysu and Thomas Curtin, graduate 
             l             d h                 d
students at the University of Rochester’s Public 
Policy School were asked by the Urban League to 
apply their skills to resolve a housing abandonment 
crisis in the City of Rochester NY  where some 
                 y
thousands of homes lay vacant.

This presentation tells how that solution can be 
applied today to stabilize housing markets  without 
actually purchasing the securities.
act all  p rchasing the sec rities
Too many houses, too few buyers, thousands 
                      f
of abandoned homes in the City of Rochester 
NY, with blighted neighborhoods and a 
        h bl h d      hb h d       d
declining tax base.

Growing suburbs with increasing home 
values and pockets of new regeneration in 
  l       d   k     f
the city.
Use modern econometric assessment models to fix 
        d                                d l    f
each homes value based on the common measures 
of value (square footage  bedrooms  baths  
of value (square footage, bedrooms, baths, 
construction, etc and location can account for most 
of the resale price of a home).
              p              )




          $100,000
Run a second valuation report that estimates 
             d l                h
market price today but without the LOCATION 
indicator.  
indicator   
That creates two values, a real market price (RMP) 
and an estimated value without the impact of 
                                       p
LOCATION (EGV).  




     RMP     $100,000          EGV       $200,000
Issue an Equity Guarantee to each owner 
which assures that after Five years the 
agency will pay them the difference between 
          ll     h    h d ff         b
the EGV and the prevailing market value five 
years later provided:
      l          d d
 ▪ The property is owner occupied
 ▪ The property is kept up to the International Property 
    h              k           h              l
   Maintenance Code Standards.
 ▪ All taxes have been paid
YEAR #1                                         YEAR #3
                                                             3




RMP     $100,000
                                          RMP     $150,000
EGV  $200,000                             EGV  $200,000




                   RMP     $200,000 +/‐
                   EGV  $200 000
                          $200,000
                   YEAR #5
Location –or the socio‐economic effect of 
                                 ff     f
neighborhood sets the value for many homes

‐But whenever that value of something is 
guaranteed or bonded by the government, it 
           d b d db h
tends to float with a market.

The closer you get to the redemption date, 
the higher the market for the item.
 h h h h           k f h
Technically, the risk was large, say $50k in average  
    h    ll h       k     l             k
guarantees for 10,000 homes would be $500 
MILLION DOLLARS.  Technically, the paper money 
MILLION DOLLARS   Technically  the paper money 
in your wallet is worth next to nothing.

Practically speaking, things are worth what the 
government says they are worth and as long as 
things are staggered to smooth out market effects it 
rolls along nicely.
Property is maintained Enhancing Values
P        i   i i d E h i  V l

Property is occupied reducing neighborhood decline

Local Government is getting tax revenue crucial to 
providing services needed to improve conditions in the 
     d                d d                d          h
neighborhood.
Today s problem is less about urban or suburban 
Today’s problem is less about urban or suburban 
blight, though it could be if we don’t fix this mess…
It s about TIME 
It’s about TIME 
or a bubble market.


Using the Equity Guarantee modeling approach, we 
add a new term to the value estimation, Time, and 
add a new term to the value estimation  Time  and 
adjust the “wayback machine” to when we want the 
value and guarantee that applying the usual equity 
guarantee rule, perhaps stipulating an interest rate 
guarantee rule  perhaps stipulating an interest rate 
and payments for the loan.
Additional Adjustments
Additi   l Adj t    t

 Potentially we d need to factor in the opportunity cost 
 Potentially we’d need to factor in the opportunity cost 
 or value of money to assure the flow, but the interest 
 rate term could handle that.

 It’s possible that we don’t want some markets to 
 return to 100% of their heyday.  We may want to 
 return to 100% of their heyday   We may want to 
 subsidize overheated markets to keep median prices 
 at a level consistent with people’s ability to pay in the 
 long term adjusting for inflation.
 l      t     dj ti  f  i fl ti
Tom Curtin  tcurtin@comcast.net

Vice President of 
          d     f
Borough Council –Parkesburg PA
Senior Enterprise Architect, 
Senior Enterprise Architect  
Large Healthcare Insurer 
Philadelphia
        p

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