Demand for home-equity loans, especially home-equity lines of credit (HELOCs) and shared-equity investment products, is stronger now than it was before the global financial crisis nearly 15 years ago.
The securitization channels for those home-equity products, however, are only now starting to catch up with the growing demand for them. Collectively, homeowners nationwide now have more than $10 trillion in tappable equity (equity beyond the 20% cushion) tied up in their properties, according to black knight hostage monitor, Securitization outlets are important for home-equity products to ensure liquidity for ongoing operations.
“The securitization of HELOCs has been a small part of RMBS [residential mortgage-backed securities] market in the pre-financial crisis period, but issuance was relatively common until 2007,” suggests a decline in 2022 DBSR Morningstar The report focuses on the securitization market for HELOCs. “After that time, HELOC production decreased as defaults and home values declined, and HELOC securitizations effectively ground to a halt for nearly a decade.
“After all, as many smaller deals made their way to market starting in 2019, more potential issuers have looked to add HELOC securitization funding [in recent months]Especially given the dramatic increase in home values providing increased home-equity availability.
A housing wire An analysis of bond-rating report data and information provided by industry experts shows that between 2019 and March 28 of this year, there were at least 17 private-label securitization deals involving HELOCs and/or closed-end second- Lien (CES) included- equity loan and separately shared-equity contract. Those 17 deals were backed by home-equity collateral, totaling $3.9 billion.
Eight of those securitization deals have gone to market since 2022, including three so far in 2023. These include a $279 million combination HELOC/CES deal issued through Conduit Todd Point HE Trust 2023-1; $237M HELOC-Backed Offering Sponsored by FIGRE Trust 2023-HEI, Fintech figure lending, and the $153 million offering, sponsored by ACHM Trust 2023-HE1, get home loan – which also gave rise to HELOCs serving as collateral for the transaction.
The Todd Point deal included HELOCs as well as CES loans originated by non-banks. rocket hostage And Spring EQ. Todd Point’s offering, according to a Kroll Bond Rating Agency (KBRA) Report, closed in early March, before March 10 collapse Silicon Valley Bank (SVB). In the FIGRE offering, Figure Lending was the originator of the HELOC in the collateral pool, according to a bond-ratings report released March 28 by DBSR Morningstar, with Homebridge Financial Services, movement hostage And guaranteed rate The HELOC is also contributing to the collateral pool.
Nick Smith, founder and CEO of the Minneapolis-based private-equity firm Rice Park Capital Management, explained that consumers are now worse off every day “as inflation outpaces their income growth.” He said that if consumers want to maintain the same lifestyle then they have few options now.
“The only way to do this is to either reduce savings or take part of their net worth out of some other assets they have [such as a home]Smith added. “Savings rates are down to all-time lows and credit-card usage is rising significantly.
“I think that trend will continue, and you’re going to see a lot more supply of home-equity lending in the market in the future because consumers want it. And I think fixed-income investors are going to say, ‘Okay. There’s quantity,’ and as long as the price is reasonable, they want to participate.
“I think it’s going to be a very significant burgeoning market.”
The need for capital-market outlets for home-equity loans, such as securitization, is especially acute for non-banks that rely on short-term revolving lines of credit, called warehouse lines, for cash flow. . The same holds true for fintech firms focused on expanding their reach into the shared-equity investment market.
“Nonbanks can’t generate it, or won’t generate it [HELOCs]If they don’t know they have securitization to dump it, or if they … need a bank partner that agrees to buy the loan on a forward-flow basis,” John Twohig, Whole-Loan Trading said the head of raymond james in Memphis. “… most non-banks just have warehouse lines, and since they don’t have the confidence to turn it around and sell it immediately [HELOC loans]Many may be scared to jump into the HELOC market.”
The most common HELOC Toohig is looking at, he said, is “10 years, IO [interest-only] 20-year amortization, with a lien on the second.” Twohigg said the interest rate on HELOCs is typically variable, “typically principal, plus 1.5 to 2 points.”
Market experts said the market turmoil was triggered by the recent collapse of SVB, which was the second largest bank failure in US history, as well as bleeding into the secondary market and disrupting private-label securitization. In addition, overall demand for home-equity loans slowed in the final months of 2022 as 30-year fixed-rate interest rates moved into the 7% range in late October and November.
“We have already seen a slowdown in issuing [securitization] sector really, so it’s not just mortgage,” said David Petrocinelli, a senior trader based in New York insperx, a technology-driven underwriter and distributor of securities that operates multiple trading desks across the country. “I think we’re likely to see maybe a little bit more of an extended period where we don’t see a lot of deals.
“But ultimately, though, like everything else, there is a season, and [those home-equity securitizations] Will come back.”
traditional home equity loan
Rob Barber, CEO of real-estate data firm nuclearSaid that the $60.1 billion in HELOC origination volume in the fourth quarter of 2022 was up 27.4% from the fourth quarter of 2021. According to ATTOM, the fold from the level of 4.6% for the first quarter of 2021.
Interest rates, though still volatile, have retreated from highs above 7% for 30-year fixed-rate mortgages late last year. By the end of March, they were down at least half a percent. Freddie Mac Latest market survey. Borrower demand for home-equity products is expected to increase for the remainder of this year — barring future market shocks, industry experts say.
Among non-banks that offer HELOC and/or closed-end second-lien (CES) home-equity mortgage products are Rocket Mortgage, Guaranteed Rate, composite wholesale mortgagehomebridge, circulation mortgage and loandepot, In fact, Rocket Mortgage was a lead originator of the CES loan for the second home-equity mortgage private-label securitization earlier this year — which closed in early March and the loans involved averaged three months, according to KBRA.
That deal consisted of a mix of HELOC and CES loans, with home-equity lender Spring EQ originating the HELOCs for the securitization transaction. Rocket originated 47% of the CES loans for the deal, with CES loans accounting for 69% of the total collateral pool. The $279.1 million offering was sponsored by firstkey mortgage – A securitization and asset management firm.
Among the most active lenders in the home-equity loan space are Spring EQ and Shape — Founder of, founded by entrepreneur Mike Cagney Sophie, Another active player in the HELOC sector is get home loanA real estate finance company under the umbrella of a consumer debt-settlement provider Freedom Financial Network Funding.
Those three lenders originated the bulk of home-equity loans for 10 of the 13 HELOC/CES securitization offerings since 2019 — the first year since the global financial crisis that the home-equity private-label market began to re-emerge. HousingWire’s analysis shows that 13 deals — including a total of six since 2022 — involved HELOC and/or CES loan collateral totaling nearly $3 billion.
Five of those securitization deals were sponsored with loans originated by Fig or Spring EQ. saluda gradeis a New York-based real estate advisory and asset-management firm specializing in alternative lending products to the non-bank sector. Those private-label securitizations offered through Saluda Grade are referred to as Grade.
,This makes a lot of sense for homeowners who are no longer able to tap their home’s equity through first-lien cash-out refs. [because of high rates] Now look to second-lien home-equity instruments, either debt or equity, to unlock their available home equity, said Ryan Craft, CEO of Saluda Grade. “We had anticipated and would expect that [increased] Securitization in the second quarter or by summer.
shared equity contract
Kraft said Saluda Grade also recently secured a $300 million line of credit Barclays Bank Plc which will be used to buy and subsequently secure shared-equity contracts originated by a fintech partner unlock technologies,
“Saluda is the borrower, and they face Barclays,” explained Kraft. “This is a traditional investment-banking aggregation-to-securitization line with a slightly longer duration than a standard short-term aggregation line.
“The mission of all parties is really to help unlock the volume of originations and help Saluda move that production toward more actively issued securitizations.”
Fintechs such as Unlock Technologies and other similar companies (such as Adjustment And point) are part of an emerging sector in the home-equity space that serves borrowers who may not be interested in or eligible for a traditional home-equity product such as a HELOC. Instead, they offer homeowners a product called a shared-equity contract (also referred to as a home-equity investment, or HEI, contract), in which the homeowners share the equity in their homes. Cash advance is granted against the share which is monetised. When the home is refinanced or sold.
Two of the four shared-equity contract securitization deals through August 2021 were sponsored by Saluda Grade, with Unlock Technologies originating the HEI contracts acting as collateral in those deals. Of the other two shared-equity contract securitizations issued during the same period, one was sponsored by Unison and the other by Redwood Trust Through Point, in which Redwood is an investor.
In the last quarter of 2022, Redwood will set up a $150 million lending facility to help finance HEI contracts, according to its filing US Securities and Exchange Commission, Real Estate Investment Trust, through its venture-investment affiliate, rwt horizonhas also invested in two higher education promoters: Point and Vesta Equity,
“There are a number of players in the space that are investing in HEIs,” said Dash Robinson, president of the Redwood Trust. “There is certainly room for that group of investors to deepen, and as markets grow and scale, it becomes easier to deepen your investor base because more investors can increasingly deploy meaningful amounts of capital.” Let’s see the opportunity to do it.”
Brian Hale, founder and CEO of the California-based consultancy mortgage advisory partners, agree that given the current climate of high interest rates, home-equity lending is set to increase over the next year — with homeowners closing in on much lower rates on mortgages that closed before last year’s rate hikes. relative to. Hale also cautions that, however, “it’s not a magic bullet.”
“It’s adding another lending program, but it’s not replacing mortgage lending in terms of revenue for mortgage companies,” he stressed. “But yes, if they can do it right and not put themselves in harm’s way, and remain prudent as lenders, they can make some money in it.”
