Palo Alto, Calif.-based Point, a shared equity reverse mortgage alternative that gives homeowners the ability to sell a small fraction of their equity, announced this week that it has completed the first-ever securitization backed by residential home equity investment (HEI) agreements.
The securitization was made in partnership with specialty finance company Redwood Trust (NYSE: RWT) and has resulted in the issuance of approximately $146 million of asset-backed securities. The transaction, “Point Securitization Trust 2021-1,” closed on September 23 and is co-sponsored with a subsidiary of Redwood. Point was the originator of all the HEIs in the securitization and will continue to service the assets, according to an announcement by both parties.
This represents a new milestone in the alternative home equity tapping space. A company representative explained that it might allow such alternative equity tapping methods to proliferate beyond their current status as a niche offering.
Expanding alternative equity tapping
When asked about the significance of this event for Point specifically and alternative equity tapping more broadly, the company sees this as a potent opportunity to expand the reach of HEIs beyond their current space. This is according to Eoin Matthews, co-founder and CBO of Point.
“This is a landmark moment for Point, for Home Equity Investments, and for homeowners who will benefit from the product being more widely available,” Matthews tells RMD. “The biggest constraint to HEI growth and adoption has been a function of capital markets constraints. [Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS)] buyers are the ideal audience for HEIs but many MBS buyers had liquidity concerns. With a repeatable path to securitization available to our partners, in addition to advance facilities, it removes those liquidity concerns.”
Last month, Point announced that it had raised over $1 billion in new capital commitments from real estate and mortgage-backed securities (MBS) investors, including Redwood Trust. The previous relationship made partnering on this transaction a natural extension of the current arrangement, Matthews explains.
“Redwood has been a partner to Point for several years, buying HEIs under flow purchasing arrangements,” Matthews says. “With Redwood having accumulated a large volume of Point HEIs coupled with strong appetite from the bond market, it made sense for both teams to pursue a securitization.”
Reverse mortgage crossover and comparison
In addition to the mechanisms allowing for home equity tapping, HEIs and reverse mortgages are also comparable in at least one other area: widespread use as a financial instrument. Reverse mortgages are generally more well-known than the kinds of shared equity investments that Point offers. Still, one of the motivations behind taking the securitization step revolves around bolstering the availability of the offering, Matthews explains.
However, one key difference between the product categories remains demographics. Reverse mortgages are restricted to homeowners aged 60 or above for proprietary products and those at least aged 62 and above for HECMs. No such age restriction exists with HEIs, though the core audience for Point is still hovering near the minimum age requirement for a reverse mortgage, Matthews says.
“The audience for HEIs straddles many demographics with the median age being in the low 50s,” he explains. “While we certainly serve many seniors, we’ve invested a lot in making sure our HEI homeowner education is exceptional. We’ve found that transparency and great homeowner experience are valued by homeowners of all ages and that’s been a major contributor to our growth.”
Desire to partner with the reverse mortgage industry has ‘only grown’
Many alternative equity company executives, including Matthews himself, have spoken at length about an ongoing desire to partner with the reverse mortgage industry since the general business goals of providing additional cash to homeowners are aligned. That desire to forge stronger bonds with the reverse mortgage industry is only stronger after the announcement of this securitization, Matthews says.
“We continue to believe in and pursue partnerships with our colleagues in the reverse mortgage industry,” Matthews explains. “The ‘low-hanging fruit’ to date has been referrals. What we’re seeing unfold now is our reverse partners looking to take on more of the product education, taking advantage of their unique homeowner engagement strategies to serve more of the leads coming to them looking for equity release solutions.”
Many reverse mortgage originators have three immediate “buckets” of decline today, Matthews says: homeowners under 62 (or 60 for proprietary products); homeowners looking for a junior lien solution; and homeowners with properties at the edge of the HECM “buy box,” he says.
“Declines make for a bad customer experience and a lost revenue opportunity,” Matthews says. “Bringing solutions like Point’s HEI to those homeowners makes a lot of sense for everyone.”
When asked if the securitization has had an impact on the company’s desire to seek those stronger partnerships with the reverse industry, Matthews remains bullish and optimistic about the shared prospects for both business sectors.
“[The securitization only] increases our desire to partner with reverse mortgage industry participants,” he says. “We want more homeowners to be able to access their equity with HEIs. Many homeowners will come to us directly. Many more homeowners start their journey with a reverse originator and find that a reverse mortgage is not going to work for them.”