Rep. Jim McDermott (D-WA) believes it is time to consider the concept of Shared Appreciation Mortgages, SAM, as a mechanism to assist American homeowners and home buyers, and his colleagues agree. McDermott, #4 on the House Ways and Means Committee, was notified this morning that an amendment he planned to offer for consideration to HR 1728, the Mortgage Reform and Anti-Predatory Lending Act, instead will be incorporated into the legislation.
To begin the debate, McDermott wants a comprehensive study conducted by the Secretary of Housing and Urban Development, Secretary of the Treasury and others they deem necessary, to determine whether shared appreciation mortgages could make a meaningful reform to the way mortgages have been traditionally offered in America.
"There's evidence that SAMs could be used to strengthen America's housing market and provide Americans with additional opportunities for affordable home ownership in a financially prudent way that also can help stabilize and grow the market," McDermott said.
In brief, a SAM provides the opportunity for two parties to purchase an interest in a single family home, but only one of the buyers will actually live there. The other buyer is, in effect, an investor who will share in the appreciation of the value of the home upon its sale. The benefits of SAM include enabling Americans to purchase a home they might not otherwise be able to afford without being over-leveraged, as we have seen in the current housing market crisis, and a SAM enables investors to participant in the residential real estate market from an arms-length relationship; instead of rental property, an investor is buying a stake in real property.
Some experts also believe that pairing experienced investors with homeowners could especially benefit inexperienced homeowners by preventing them from overpaying for property or even for the cost of a mortgage. "A home typically is both the largest investment and the largest debt burden Americans will see in their lifetime, and the more we can offer the American people to help them make smart choices, the better it is for everyone," McDermott said.
"Home ownership is the dream of virtually every American and there were ways we can prevent that dream from becoming a nightmare - Shared Appreciation Mortgages may be one way and we owe it to the American people to find out."
Current tax law and regulatory barriers prevent widespread use of SAMs, so the McDermott amendment would begin a process by which the Administration and Congress could consider how SAMs could be developed and deployed to improve the integrity of the housing market, and provide more opportunities for investing and affordable homeownership.
A copy of Rep. McDermott's amendment is attached. The language has been folded into the so-called Manager's Amendment for HR 1728 and will be incorporated into the bill that the House of Representatives is considering today.