SFgate.com published an interesting article today about how home buyers are using equity sharing to purchase homes. The model has been compared to Prosper - borrowing and lending among people to meet financial goals. In fact, Prosper CTO John Witchel is quoted extensively in the article.
First, what is equity sharing? Home ownership is split between the resident of the house and an investor. The investor typically makes all or part of the down payment and the resident makes the mortgage payments. By some pre-determined termination date (usually 3-10 years) the parties sell the house and split the profits or the resident refinances the property and buys out the investor's portion. This helps potential home buyers purchase a home even when they do not have the money to make a large down payment.
Jeff Langholz created a site, homeequityshare.com, to match buyers and investors. According to the article, "Langholz compares his Web site to Prosper, the person-to-person lending Web site that started in February 2006. It allows people, regardless of credit rating, to post the amount they'd like to borrow so lenders can bid on it, eBay-style."
The article goes on to compare home equity sharing with Prosper:
Prosper co-founder and Chief Technical Officer John Witchel says these community-based models of doing business have important implications for the economy.
"The thing we talk about internally, it's kind of schlocky, but we talk about that great scene in "It's a Wonderful Life" where Jimmy Stewart is at the teller window and there's a run on the bank, and he's saying, 'The money's not in a safe or in a vault or in the basement, it's in your neighbor's house, it's in the farm down the road, and we all have to work together to make it work. And if not, Mr. Potter's coming to town.'
"We'd like to see a return to a way of life where people are standing up for each other," Witchel says, "and they're not naïve about it and they're not idealistic about it. We believe people are good."
Are there any readers who have invested money in borrowers on homeequityshare.com or otherwise participated in equity sharing programs?