Fintech platform Point and specialty finance company Redwood Trust, Inc. announced on Tuesday the completion of what the companies claim is the first-ever securitization backed solely by residential Home Equity Investment (HEI) agreements.
The transaction, which closed on September 23, issued about $146 million of asset-backed securities. Point originated all the HEIs included in the deal and will continue servicing those assets.
HEIs enable homeowners to cash out on some of their home’s equity by giving an investment company a minority stake in the property. HEIs are secured like a loan, but homeowners do not make a monthly payment. At the end of the agreement (typically between 10- to 30-years in length), the homeowner pays back the advance in home equity from the investment company and a percentage of the home’s appreciation. Companies that provide HEIs charge an origination fee of around 3 to 4 percent, and will usually take a 15 to 25 percent share of the home’s appreciation. HEIs are often seen as an alternative to Home Equity Lines of Credit (HELOCs).
The new fully HEI-backed securitization, or pool of tradable home equity assets, will allow investors to have quicker, easy access to their investments through Point and Redwood Trust without having to depend on fund vehicles or other purchasing agreements to dole out capital.
The companies tout the securitization as having “greater liquidity” for issuers and end investors, with investors and homeowners essentially “shar[ing] in home price changes” because of the HEI risk-sharing structure, whereby homeowner and investor both hold a stake in the property.
At the end of August, HEI tech company Unlock Technologies and private alternative real estate investment firm Saluda Grade Asset Management LLC (SGAM) claimed to be the first group to successfully close securitization backed in part by HEI assets. That transaction closed $153 million unrated securitization, and also included backing from other mortgage assets acquired by SGAM.
Point and Redwood Trust’s securitization was structured as about $120 million unrated senior class A-1 securities and about $26 million unrated class A-2 securities by Nomura Securities International Inc.
“Homeowners across the country are turning to [HEIs] in record numbers to unlock more than $20 trillion in illiquid wealth tied up in their homes,” Eddie Lim, co-founder and CEO of Point, said in a statement. “This first-of-its-kind securitization is a testament to the investments we’ve made in Point’s technology platform, homeowner education, and seamless execution. By providing liquidity to existing investors and access to HEIs for new investors, the securitization will be instrumental in making it possible for Point to help more homeowners improve their financial health.”
“We are excited to co-sponsor the first Home Equity Investment securitization,” Bo Stern, head of portfolio strategy and risk for Redwood Trust, said in a statement. “This inaugural transaction opens a new door for investors to access one of the largest investable markets in the world while enabling homeowners to participate in the benefits of home price appreciation without having to sell their homes. HEIs also represent a sizable new market opportunity for Redwood as we continue to evolve and diversify our revenue sources and disrupt the housing market.”
Point also recently announced $1 billion in capital commitments from a number of established real estate and mortgage-backed securities investors, including Atalaya Capital Management, Kingsbridge Wealth Management, Palisades Group and Redwood Trust.