United States: Free and Clear Foundations of America Prepares To Launch Trillion Dollar Zero Interest Mortgage Market in United States
Last Updated: December 20 2002

The Free and Clear Foundations of America announced that it is reaching out to the global banking industry to jointly develop a potential $1 trillion annual market in zero interest mortgage product originations and funding.

Historically, small banks and savings and loans served local neighborhoods; and the evolution of the mortgage industry from traditional building societies and credit unions that offered low interest financing for housing eventually became dominated by large global banking establishments who could market their securitized collateral mortgage obligations to a much wider investor base.

Smaller institutions were mainly located in local neighborhoods whose loans were closed and then packaged up in portfolios and then sold upstream to larger institutional investors such as the Federal Home Loan Mortgage Corporation, or Freddie Mac and Fannie Mae. More recently traditional mortgage products in the mortgage banking industry have had their rates drop to historic low levels where the Zero Interest Mortgage (ZIM) can now be priced and resold on a very competitive basis.

When global investor demographics changed radically and global finance evolved into a more technological and fast paced service system, banks began to consolidate through the merger and acquisition process, taking with them the capital and financial resources needed to help keep local neighborhoods strong.

Despite the Community Reinvestment Act in the United States and a host of other rules and regulations promulgated by the Department of Housing and Urban development, housing finance is still expensive relative to post World War II levels due to the fact that at least 20% of all homeowners, particularly in America, still spend at least half their incomes on housing costs.

Seeking to reverse this trend, the Foundations which are headquartered in Washington D.C., have established a network of ready and willing volunteers across the world who are prepared to assist in implementing the zero interest mortgage program under what is billed "The Free and Clear America" campaign.

The founders want to demonstrate that institutional investors can still earn substantial profits from the cash flows of such instruments while at the same time helping to build real permanent wealth for individuals and their families.

In 1992, a highly successful mortgage banker first formulated the concept of the ZIM, but mortgage rates over the past decade had been too high to be able to competitively price and market the mortgages and create any solid institutional investor interest.

Together with its affiliates--a real estate development company, a non-profit human service organization, a network of professional lobbyists, and a venture capital company--the Foundations have succeeded in educating enough potential customers and investors to gear up for the launch of this program into the $7 trillion US mortgage market.

The Free and Clear Foundations are seeking to have large global financial institutions act as their master licensing agents for the ZIM product line, as well as coordinate funding, closing, shipping, collections, and management of the secondary market for the products to be franchised to approximately 700,000 mortgage brokers and bankers around the world.

The Free and Clear Foundations have developed a business model to create a global secondary market for the ZIM line, and with the help of the international banking community, and the Community Reinvestment Banking Act Officers (CRO's) in the United States, aims to provide any family that earns less than $500,000 per annum with this program, which accelerates "true home ownership" at less than half the cost of traditional mortgage products.

While the annualized yields on the ZIM product range between 4.9 and 5.2%, and with restrictions on secondary financing, which defeats the purpose of owning a home free and clear in less than a decade, institutional investors, particularly those in jurisdictions with depreciating currencies against the dollar, or rates below current market rates offered through US agency obligations, can take advantage of investing in the product line while actually doing a greater good for a greater number.

Statistically, the default and delinquency rates on traditional mortgages are currently running at 40 year highs and with the continued concern about recovery in the US economic climate, the tip of the housing bubble, and increased corporate bond defaults and bankruptcies, the ZIM product line offers investors increasing and compounding collateral value, while at the same time benefiting the consumer with rapid acceleration of equity buildup in what is traditionally their largest single asset purchase, namely the single family owner occupied home.

The benefits are clear. The borrower repays the cost of the borrowing or refinancing under the ZIM program during the first year. Thereafter there is rapid buildup of true equity for the homeowner and their immediate family. Such costs are amortized over the life of the loan, which are 100 equal payments of principal only. Tax deductions are less than on traditional mortgages which is currently the only drawback for those who itemize their deductions, however a sister organization of the Foundations is working actively to lobby the US congress to change that as well.

The Free and Clear Policy Institute, also in D.C., is drafting a bill, which it hopes will catch the attention of policy makers, budget negotiators and key industry supporters such as the National Association of Realtors, the Home Builders Association and the Mortgage Bankers and Brokers Associations across America.

The Free and Clear Policy Act aims to repeal the mortgage interest deduction on single-family owner occupied housing, while at the same time providing taxpayers with a credit for paying down principal. This would incentivize the ideal of the "American Dream" of home ownership and create enough of a government budget surplus to pay off the $6+ trillion U.S. national debt within a decade.

The extra capital going to the government which is estimated at $300 billion per annum in interest savings alone would, once the national debt is paid in full, result in increased capital available to develop more productive uses of government funds, particularly toward millions of patents for products, technological advances and programs which are under funded or currently completely ignored, especially in the fields of education, social security, and health care. The proposed bill would also pave the way for eventual further tax cuts on capital gains, double taxation of dividends, as well as reduce corporate income taxes in the longer term.

The Free and Clear Foundations are asking the international banking industry to assist it in launching this product, which is estimated to have a market potential of $1 trillion in sales during the first twelve months of operation. The product will conform to Fannie Mae and Freddie Mac underwriting guidelines, be very competitive with traditional mortgage product offerings, and has already generated tremendous interest from the consuming public.

FNM and FRE currently manage approximately $4 trillion in outstanding mortgage debt in the United States through the issuance of mortgage backed securities and their ongoing purchase of mortgages through a national network of mortgage banks and other financial institutions.

In an era of predatory lending practices and abuses in the financial services industry, the ZIM product line offers the greatest possible good for the greatest possible number in each community, and will eventually lead to affordable housing for every family in the world.

The ZIM product line, when launched through licensing agreements to the participating international banks, will provide affordable mortgage financing which rapidly builds equity for the individuals and businesses that utilize the product in their local communities.

The ZIM product will provide additional profit incentives for the international banks from sub servicing rights, origination fees and participation in yield spreads as the product develops through an international secondary market, as well as expanding their potential target market to reach a wider customer base in their own local markets.

In addition, these participating banks which typically provide some sort of non-financial, capacity or market building development services, either directly or through a subsidiary or affiliate, will have the opportunity for cross selling their other product menus to the customer base created by the Foundations.

The Free and Clear Foundations has developed marketing and educational materials relative to accelerating the building of individual net worth using the ZIM product lines, as well as materials on how to obtain a down payment assistance mortgage if a consumer has been unable to save enough money to purchase a home, paving the way for increasing home ownership in America at to 90% of the population. Currently, 70% of all Americans own their own homes through traditional mortgage bank financing according to statistics provided by FNM and FRE.

The Free and Clear Foundations recognizes that the international banking industry continues to grow, consolidate and mature. Working with several trade groups the Foundations are seeking to refine its proposed measures for both financial and development success, particularly to the services available to individual homeowners, throughout the global housing industry.

If you currently act as legal counsel to any large international financial institution and would like to make it possible for it to build upon these good works through participation in the intellectual capital developed and owned by the Foundations for this product, feel free to email freeandclearsocieties@thepennyking.com for a copy of the prospectus.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Recent Content from this Firm
Font Size: