HOM-NFT Utility 5: Lend and Borrow
Lending and Borrowing
Once a property owner has created a property HOM-NFT, she can bond the NFT to the treasury in exchange for HOM tokens. Bonding is the act of giving your property NFT to the DAO (including encumbrance of title) in exchange for crypto.
The process of bonding a property for crypto is similar to what property owners do when they get a reverse mortgage. However, in the bonding process, the underwriting process excludes the credit qualifications and scrutiny of the “borrower.” The HOM Protocol will only underwrite the property. This is done by the integration of third-party validators which verify the meta-data collected about the property and live on the blockchain within the NFT ecosystem.
When you bond your NFT to the DAO treasury, the title for the NFT is passed to the treasury where it is recorded on the blockchain and held by the DAO trust entity in the country in which the property is located until the loan is paid off. The borrower can get a loan for the entire appraised amount of the property, or a portion of the property.
The DAO foresees issuing loans in three different categories: property purchase and refinance loans, bonded property loans, and HELP loans.
Property purchase and refinance loans are similar to a traditional mortgage, and the proceeds of these loans are paid in USDC with a monthly repayment program. Additionally, these loans could be sold in the secondary market to create liquidity for the treasury. The DAO will begin offering these types of loans once there is enough USDC in the treasury to support them. In the future, property owners may have the option to receive some fraction of their loan in USDC, and the rest in HOM tokens, which may be staked in the vote-to-earn program to offset the monthly payment of their USDC loan.
Bonded property loans are a way for a property owner to create liquidity, by placing their property in the treasury in exchange for HOM tokens. In order to eliminate HOM token volatility risk for property owners, bonded property loans are issued in HOM tokens and are to be repaid in HOM tokens. Interest payments, and other operating payments can be paid in USDC or HOM tokens. The HOM tokens received can be staked. Property owners, like other DAO members, must contribute to the DAO via voting or other work in order to receive their staking rewards.
HELP (HOM Equity Liquid Pool) Loans. The HELP Program (see the section titled The HELP Concurrent Closing Program) is a social impact arm of the DAO which helps lower-income DAO members afford safe and sustainable housing. HELP is essentially a revolving line of credit that will be used to help HOM DAO members acquire properties encumbered by HOM-NFTs, and then bond the HOM-NFTs to the treasury.
There are two NFTs involved in a lending transaction. One is the Lend NFT Lender (LNFT-L) and the other is the Lend NFT Borrower (LNFT-B). The LNFT-L resides in the wallet of the DAO (or a subsequent owner of the LNFT-L) and the LNFTB lives in the wallet of the borrower and provides direction to support repayments.
For bonded loans, the DAO may keep 100% of the loan value in HOM tokens within the treasury and stake these HOM tokens, typically at a 20% fixed rate (at least for the first year of the program). Any bonus tokens provided to the borrower are free for them to use. By holding the amount of HOM tokens in the loan as collateral, there is no risk that the loan will not be repaid to the DAO.
Alternatively, the bond can be converted to USDC and the borrower can take the funds and enter a repayment program based in USDC, with associated monthly principal, interest, taxes, insurance and fees. Typically a reserve of several months of payments is required in this scenario.
As part of the smart contract underlying the HOM-NFT bonding process, the person, group, legal entity, or DAO. that owns the property, or wishes to buy the property, is responsible for the costs associated with the transaction, including underwriting, and paying for the associated costs, including minting of the HOM-NFT, property appraisals, title transfer, and insurance.
The borrower has the option to make payments for the interest, principal, insurance, and expenses for the loan, which can be made from deducting staking awards for the HOM tokens, which are held as collateral.
The vote-to-earn staking of HOM tokens can generate significant yield, possibly high enough to cover interest payments (which are issued at a fixed 5%), taxes, insurance, and any other necessary expenses, and pay down the NFT principal.
In this scenario, the staking smart contract associated with a HOM-NFT bond includes the concept of reserving the staking awards each month, then deducting the interest, principal and associated fees for the loan, prior to releasing any awards to the Borrower. If the staking awards are not sufficient to pay for the fees, then the HOM-NFT owner would have to make a coverage payment to cover the difference. If the coverage payment is not made, staking awards are withheld and the property may be foreclosed.
If there is a shortfall in coverage from staking awards, the Borrower’s wallet is debited to cover the amount. In the event of a borrower default, the HOM tokens held as collateral are recovered by the lender, and foreclosure proceedings are initiated to evict the borrower from the premises. Because of the dayNFT functionality of the HOM-NFT, there is a pathway to helping a defaulted borrower still have the ability to live in a home, turning what is now a legal process under the direction of a local magistrate, into a smart contract driven process, that may rectify the default before subjecting the borrower and lender to real world legal woes.
Each property that is presented to the DAO for loan approval must go through an underwriting process. The initial underwriting process will be highly manual, with subsequent processes becoming more and more automated until full automation is achieved. Initially, the DAO will vote to approve or deny each loan manually. Once the DAO has established a process with which it feels comfortable, it may grant the Real Estate Sub DAO the autonomy to approve the loans. As more data-points are cultivated, various levels of automation will be achieved until there is enough data to create an on-chain artificial intelligence system which will underwrite all of the DAOs loans.
Last modified 10mo ago