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Startup Could Introduce Reverse Mortgage Alternative

While the plans remain long-term, the cofounder of a home equity-extracting startup told RMD that his company could introduce a product that would compete with the traditional reverse mortgage.

Eoin Matthews, who cofounded Point Digital Finance, Inc. back in 2015, said he could see the firm targeting older, Home Equity Conversion Mortgage-eligible consumers once it fine-tunes its approach enough to introduce 30- to 50-year contract terms.

Point uses a model similar to the shared appreciation mortgage: The Palo Alto, Calif.-based company offers homeowners a one-time payment in exchange for a percentage share of their property, with a 10-year timeframe to either sell the house entirely and repay Point through escrow, or buy out the company’s position and stay in the home. Point makes its money through the appreciation of the home’s value over time, as its eventual cut is based on the appraised value at the time of the payout; as with shared appreciation mortgages, Point could lose money on an individual investment should the value of the home decline during the 10-year period.

Though not technically a home equity loan of any type, Point has positioned itself as an alternative to traditional home equity lines of credit, Matthews told RMD in a phone call. Since launching, Matthews said, the startup has attracted primarily “more seasoned” but not senior homeowners, with an average of 11 years in the home and a desire to avoid a home equity line of credit. In fact, Matthews noted that many customers use the product as a “bridge” to a traditional secured home equity loan, sometimes using a HELOC in part to buy Point out of its position.

The company typically aims to buy 5% to 15% of a property, with a record-high check of $250,000 and a general home value range of $350,000 to $3 million. The average age of Point customers has ranged from late 30s to early 50s, Matthews said, though they’ve worked with homeowners in their late 20s and early 90s. 

Over the course of the interview, Matthews praised the Home Equity Conversion Mortgage program, and said that it might represent a better option for older clients than his company’s flagship product, as the HECM is tailored for seniors who intend to live out the rest of their days in one home. 

“We’d encourage them to look at a reverse mortgage product before Point, especially if they’re not planning on moving,” Matthews said, adding that Point also doesn’t necessarily want to wade into the potentially difficult world of foreclosures on elderly homeowners.

Still, Matthews said that Point has underwritten multiple transactions for older folks who had designs on moving within the following 10 years.

“There are certainly seniors for whom a 10-year product works, seniors who are actively thinking about downsizing [and] want to draw some equity now to build to that sale,” he said.

And developing a viable alternative to the HECM is part of Point’s future planning. He floated the idea of a 30- to even 50-year product term, touting the fractional position and early-buyout option as potential selling points for heirs concerned about having to use all of the proceeds from the home sale to pay off the loan — as the seniors could either buy out Point during their lifetimes, or the heirs could use the proceeds from the home sale to cover the repayment and still have a sizable inheritance.

“I think those attributes make it to senior homeowners and their beneficiaries,” Matthews said.

Written by Alex Spanko