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CHICAGO HOME OWNERS - For Some, A New Way to Tap Home Equity! But it Can Cost You, Down the Line!


Read housing market news on the Internet, and you'll find that traditional Home Equity Lines of Credit are hard to come by these days.  Many individual homeowners have lost thousands in home equity, due to the sluggish housing market, here in Chicago, and in other parts of the U.S.  Fewer banks are willing to risk loans against home equity with property values often tumbling.

Three clever companies are attempting to go around the trend.  REX & Company, Equity Key, and Grander Financial are offering equity cash to homeowners, in return for a guaranteed share of future home appreciation.

REX, a San Francisco CA based firm, offers up to $70,000 in cash to the owner of a $900,000 home who is willing to share 30% of future home equity with the firm.  They would offer $117,000 for a 50% share of future equity.  Not included in their formula are current home equity, or equity growth through capital improvements.  There are no interest rates or monthly payments.  The transaction ends when the seller transfers the property via sale.

This is not a reverse mortgage, where interest charges must be repaid, and are added to the total debt.  All of REX's revenue comes from future changes in the value of the subject property.  If values go down, REX takes a loss equal to the percentage of the value change shared in the agreement. If values remain flat, the homeowner repays the amount extended by REX.

However, if the property's value increases, the company's returns can go up, perhaps considerably!  The company is presently writing equity growth agreements in 13 states - now including Illinois. 

According to Tjarko Leifer, Managing Director of REX, their typical customer is a 50-something Baby Boomer, with roughly 50% equity in their home.  "They want to protect what equity they have already gotten," but they also want to "take some chips off the table" for investments or personal or business expenditures.

Competitive firm Equity Key, based in San Diego CA, offers a similar program for homeowners over the age of 65. 

Grander Financial, headed by entrepreneur Anthony Hsieh, who founded, then sold, (now E-Trade Mortgage), and Home Loan Center (absorbed into Lending Tree LLC), offers the owner of a $500,000 home a lump-sum payment of $71,429, or the owner of a $1 Million home,  $142,857 up-front, for 50% of future equity appreciation.

Two important things to consider with each of these programs -

First, only specific property types and values, in states where the companies are licensed, qualify.

Second, although the firms do not place traditional mortgage liens against the property, they do legally encumber a portion of the owner's future value of the home.

For more info, read Kenneth R. Harney's article in last Sunday's Chicago Tribune Real Estate Section.


Posted: Monday, September 08, 2008 7:48 PM by Dean's Team


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