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Play it, SAM

Edited by Peter Lee

Fancy a bond secured on a zero-interest, interest-only, life-long loan? With the Bank of Scotland, you can now borrow 25% of the value of your house and not repay a penny for the rest of your life. SBC Warburg is securitizing the mortgage and foretells this brand-new market will soon be worth hundreds of billions of dollars worldwide.

The shared appreciation mortgage (SAM) has just been launched by the Bank of Scotland, fully refinanced by SBC Warburg in advance of a securitization in the first quarter of 1997. But how interested will investors be in the securitization of an asset with no track record ­ because it has not existed before.

The concept is simple: the homeowner pays zero or low interest; the bank, in return, gets participation in any increase in the value of the house when it is sold. In the case of the zero-interest SAM, as opposed to a low-interest SAM, the bank sees a return on the original loan of three times the increase in house values. So if Bank of Scotland lends a homeowner 25% of the value of a property, it will receive 75% of any increase in value when the home is sold, plus the original 25% loan.

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