Fixing Employment by F ixing Housing

1. Fixing Employment by Fixing Housing Clearing the Shadow Inventory Patient Capital Financial Solutions

2. Expand HARP, HAMP, NSP, HHF solutions by converting “incentives” into investments • Savings and Credit finance economic growth, which in turn creates job opportunities. • The capacity to leverage credit is linked to the perceived value of the collateral involved, which is tied to what others will pay for it. • As the value of collateral falls, the capacity to finance expansion through credit contracts too. A contracting economic eliminates jobs. Patient Capital Financial Solutions

3. US housing is the world’s largest asset class. • Almost 66% of US citizens store wealth in housing collateral. Homeownership is now at its lowest levels in 13 years; collateral values are falling due to housing supply (for sale) and tighter lending standards, and a weak economy. • When America’s largest asset class falls in value, Americans become poorer; confidence falls and consumption abates. Shrinking consumer participation causes the economy slow and jobs are lost further pulling the economy down. • From the sidelines, businesses prudently wait for demand to return. • http://www.radarlogic.com/brochures/Housing_is_a_Very_Big_Asset_Class.pdf • http://www.bloomberg.com/news/2011-07-29/u-s-homeownership-rate-falls-to-lowest-in-13-years-on-stricter-lending.html • http://www.voanews.com/english/news/usa/US-Home-Prices-Consumer-Confidence-Fall-132537988.html Patient Capital Financial Solutions

4. Where’s the “fix” • Four years after stabilizing the financial sector, housing prices continuing to fall. Why? Financial optics, rather than financial solutions have simply “pushed the can down the road.” • The reality is: actual and potential sellers out number actual and potential buyers. • The capital-leveraging financial services industry that made the current housing inventory possible is no longer there. • The world’s financial system continues to de-leverage with the falling values of all collateral. • http://www.mckinsey.com/mgi/reports/freepass_pdfs/debt_and_deleveraging/debt_and_deleveraging_full_report.pdf Patient Capital Financial Solutions

5. “Right-sizing the supply” • With tighter credit standards and excess housing supply, the wrong kind of buyer is setting the “clearing” prices for housing. • The huge shadow inventory of (approximately 1.6 million homes) that needs to be sold adding to the downward pressure on housing values. Borrowers are attempting to sell to unwind financial contract they can’t afford. But, with falling values – they are often trapped. • Speculative “cash” buyers of foreclosures and distressed properties are influencing all property values, driving prices down, reducing nations wealth in the process and capacity to finance economic growth. • We need to influence (reduce) the supply of homes needing to be sold • http://www.corelogic.com/about-us/news/asset_upload_file483_12353.pdf Patient Capital Financial Solutions

6. “Right-sizing ownership” • The reality is with the contracted financial system and economy, many people now find themselves with more house than they can afford. The economic fix needed is to “right size” their ownership with their “sustainable” capacity to pay. • We need to reduce the downward spiral in housing values. This can be done profitably with an element of “patient capital” and a new loan resolution process. In adjusting to borrowers’ economic realities we can restore their confidence in the future. Patient Capital Financial Solutions

7. If only we could… • For homeowners whose incomes and property values have contracted with the economy, we can adjust their housing debt and homeownership equity through a restructuring of existing contracts. • In doing this, we will address the current economic reality, rather than buy time as we do with current unproductive incentives which only “kick the can down the road.” Patient Capital Financial Solutions

8. Change the operating paradigm • Create a “Land” bank-like approach • Allow an existing government fund (HARP, HAMP, NSP, HHF) to participate/invest with • a non-bank mortgage processing company and • an independent non-bank financing company • to evaluate and underwrite self-identified consumerswho can pay something and want to stay in their current home for a restructured ownership opportunity • Allow the Land Bank to use public and private funds to purchase the underwater properties from banks at book values. • This new approach eliminates the non-responsive, conflicted behavior embedded in the current resolutions process. Patient Capital Financial Solutions

9. Restore Stability & Accountability • Restructure borrower debt and net-ownership based upon: • The borrowers capacity to pay (mortgage & other installment debt) • The note or 1st lien will be based on the property’s current (non-distressed sale) economic value, not the original loan amount. • Assign any “negative equity” associated with the restructuring the monthly payments to affordable levels, will be assigned Interest Only Real Estate Appreciation Rights. The patient capital fund will own these instruments. • The new “mortgage debt” will then be financed with private sector funds. Bond fund managers are now turning to equity investments because of the lack of safe, affordable debt instruments. • Borrowers who walk away from restructured transactions will have their negative equity converted to a Treasury lien, with a 15 year payment plan. • Providing employment mobility and finance accountability as needed. • http://www.pimco.com/EN/Insights/Pages/NeelKashkariDiscussestheExpansionofPIMCOsEquityPlatform.aspx Patient Capital Financial Solutions

10. The Impact • Fewer houses on the market driving down prices, quicker restoration of stability in the world’s largest asset class, ending the continuing decline in consumer net worth. • Movement of the problem assets out of conflict resolution process allows for quicker resolution of housing which cannot be restructured. This makes it possible for bank’s get back to work making good loans that leverage economic growth - sooner. • Replace taxpayer expenses in ineffective financial incentives to loan servicers and investors with productive earning assets. • The reduction in housing inventory will benefit real estate and construction jobs. • The restructuring debt activities of debt will benefit mortgage lending and processing jobs. • The restricting of debt will put over burdened debt consumers back in the market as regular consumers – creating demand, then jobs. Patient Capital Financial Solutions