Hometap Seeks First Rated HEI RMBS As Early As This Year

In a significant development for the US home equity finance market, Hometap, a prominent home equity investment (HEI) firm, is poised to introduce its first rated securitization secured by HEI products. This pioneering move, as disclosed by Hometap’s CEO Jeff Glass to GlobalCapital, is expected to materialize by the end of this year or early 2024. This initiative represents a groundbreaking step in integrating niche financial products into the broader investment landscape.

Hometap‘s initiative is not just a first for the company but a groundbreaking moment in the financial sector. The proposed securitization, which involves converting home equity shares into marketable securities, is set to attract a diverse range of investors. Insurance companies, sovereign wealth funds, family offices, hedge funds, and alternative asset managers have already shown considerable interest in this novel asset class.

The appeal of HEI products lies in their unique investment structure. Homeowners receive upfront cash in exchange for a portion of their home equity, allowing investors to benefit from rising property values. This model has gained traction among various homeowner demographics, including small business owners who may not have traditional income streams.

While Hometap‘s venture is a first in terms of ratings, it’s not the inaugural securitization of HEI products. In 2021, fintech firms like Point and Redwood Trust, along with Unlock Technologies and Saluda Grade Asset Management, executed similar securitizations. However, the introduction of rating methodologies, such as the one recently published by DBRS, is a game-changer. It paves the way for broader investor participation by providing a standardized assessment of these securities.

The US housing market is experiencing a surge in home equity, with Bank of America reporting a staggering $17 trillion in tappable equity. This increase, coupled with record-high home prices, is fueling the growth of home equity release products. In the current economic climate, where rising interest rates make refinancing less attractive, homeowners are increasingly turning to alternative equity monetization strategies, including HEI contracts.

HEI contracts typically have a longer duration (10-12 years) compared to other asset-backed securities, making them particularly attractive to long-term investors like insurance companies. The robust demand for housing, coupled with limited supply and low unemployment rates, continues to drive up housing prices and, consequently, the appeal of home equity products.