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As thoughts of today's troubled housing market conjure up images of lonely tumbleweeds blowing across streets of empty condos and "For Sale" signs, a couple of financial wizards have come up with a program they believe could breathe new life and buyer confidence into the decimated sector. It's called Sirius Value Protection — and works like a 'put option,' where buyers of new homes get the right to exercise a put that would require Sirius buy back the home at the original price after an eight-year period.

Andrew Herzberg, along with his brother Kenneth, both former investment bankers, came up with the program after seeing sales grind to a halt on thousands of newly constructed and half-built single family homes and condos in markets such as Las Vegas, Phoenix and parts of Florida. The aim is to assist developers and homebuilders clear unsold inventory, which — at least theoretically — should then help to stabilize home prices industry-wide.

"The consumer is very, very fearful — they have no idea where the bottom of this market is and they're very concerned that if they buy a piece of real estate now, that two or three years from now they'll see further significant erosion in the value of their property," says Andrew Herzberg, co-founder of Sirius Value Protection LLC, a closely-held company based in New York.

Jittery home shoppers have watched home prices plunge 30% on average from their mid-2006 peak, according to the Standard & Poor's/Case-Shiller Home Price Index, with some markets suffering price drops as deep as 70%. Many potential buyers are further frightened by economists and analysts who predict prices could fall another 5% to 10% before the sector bottoms out — and possibly worse if the country experiences a double-dip recession.

Those fears were abundantly evident in a recent Conference Board report showing that consumer confidence took an unexpected dip, sliding 11 points in February, and the present-situation index, which measures consumers' opinions on current economic conditions, plunged to its lowest level in 27 years. "People are scared," says Herzberg.

Sirius Value Protection offers to calm investor jitters by guaranteeing the long-term value of the property through the put option, says Herzberg. At the same time, the program gives the developer, fund manager, bank, or homebuilder — whoever currently owns the newly-built home — a competitive edge over rivals, he says.

"In South Florida, you have literally tens of thousands of unsold units and a lot of the biggest builders see this [program] as a significant marketing tool," says Herzberg. "It gives them a huge competitive advantage in a very crowded marketplace."

Still, Herzberg's Sirius Value program is far from a slam-dunk fix for the housing slump. Under the program, which received a provisional patent from the U.S. Patent and Trademark Office last month, the developer or homebuilder must give 20% of the purchase price to Herzberg's group as a fee for the put option — a payment that many developers may be reluctant to cough up. "20% is astronomically high!," says one analyst, who did not wish to be named. "What builder would give away 20% when they're doing 5% or 10% [pretax] margins? If they gave away 20% of the house price, they'd lose money on every house." He sees a 2% or 5% charge being more reasonable.

Many developers have already slashed prices and chopped overhead, leaving little room for further cutting, notes Bob Curran, a managing director at Fitch Ratings. "It comes down to how desperate the builders and developers are to do something like this — to take 20% off the top - when many have already cut things to the bone," he says.

Joel Rassman, chief financial officer of luxury homebuilder Toll Brothers Inc., says the program sounds "expensive" to him, although he does say that a lower fee "might make the program worthwhile" in certain markets.

The program isn't without risk for homebuyers either. It requires the homeowner hang onto the new home for eight years before being able to exercise the put option. If the owner sells the house on the open market or loses it in foreclosure before the eight-year waiting period expires, the person is out of luck — the put option becomes worthless. However, homeowners do have the option of opting out of the program in the first six years in exchange for handsome cash bonuses, ranging from 10% of the purchase price in year one to 3% in year six. Still, some analysts feel homeowners should be permitted to exercise the put — i.e., sell back the house at its original price — after three or four years.

Some also question the program's long-term financial viability. Sirius Value isn't regulated since it's neither an insurance product nor a security, and experts caution that a lot can happen to a market, program or company in the eight years before the put option can be exercised. "Do they have the financial resources and will they be here eight years from now?" asks Curran.

James Wilson, a managing director at JMP, expressed similar concerns. "It all sounds great, but when push comes to shove, and if we had another housing collapse in eight years, could the counterparty afford it?" asks Wilson.

Andrew Herzberg shrugs off such concerns. He says it all comes down to how the assets are managed, how the real estate performs, and, if all else fails, a reinsurance contract. He says the 20% premium fee will be placed into an investment trust and actively managed over the eight year period. He says he has two banks, Wells Fargo and Credit Suisse, on board to manage the assets and even lend money against the home in year eight if needed. On top of that, he says talks are underway to bring in a reinsurer. "The reinsurers' job is to step in at the end of the day and make up any shortfall should there be a shortfall," he says. "I don't want anyone to have any question about where I will be in year eight."

However, when Wells Fargo and Credit Suisse were contacted, they confirmed there had been "discussions" with Hertzberg's group, but said no formal agreements had been hammered out yet.

Herzberg also defended his group's experience in the field, noting that he and his brother Kenneth have spent decades in the investment banking arena, with Kenneth having worked at such firms as the Carlton Group and Madison Equities and Andrew having worked as a trader at Rosenthal & Co., and Societe Generale. "We have collectively been in the real estate business — the parties combined — for about 60 years." He adds that the program would not be financially viable in the current environment, though, without the 20% fee.

• Janet Morrissey