Abstract

Several levels of financing precede the long-term first mortgage to the ultimate purchaser-occupant of a completed home. For these loans the proportion of cash equity commitment is often small and the sources of financing are limited. The purpose of this article is to indicate the financial structure of the real estate development industry and to propose a solution to the lack of equity and liquidity of funds committed to this industry. The proposed solution will be in the form of secondary market firms which would acquire or insure developer and builder loans. The principles of Interim Finance Company (IFC) have been outlined. From the standpoint of the seller, it provides him liquidity on good paper. This proposed reform enables a land developer to draw cash for good papers possessed by him and not have an aggravated liquidity problem. The entire process does reduce risk. IFC would insure mortgages over a wide area, perhaps nationwide. Finally, the paper is taken off the balance sheet of the land developer.