January 26, 2011
The proposal seems to favor highly leveraged homeowners. All else equal, those with more mortgage debt will have higher net worth. Consider the following example:
$500,000 home, $900,000 other assets, no debt. This person's "net worth" (for purpose of determining Accredited status) is $900,000. Not Accredited. However, if the person then draws $200,000 on a HELOC and sticks it in a checking account, "net worth" is transformed to $1.1 million ($1,400,000 traditional net worth less $300,000 "value of residence.") That'll put the power of "credit" in Accredited.