As home prices soar to record heights, institutional investors are warming to the idea of taking an equity stake in single family homes in exchange for a share of profits that may be realized when the home is sold.
That’s Unison Investment Management’s perspective on its recent securitization of $443 million in residential equity agreements (REAs), which the company said is the largest securitization of REAs to date.
Unison says it’s transforming the way homes are purchased and owned by allowing homeowners to trade a portion of their equity for cash, instead of borrowing against their home. The San Francisco-based startup is then able to package the REAs into securities that can be purchased by investors. Most U.S. mortgages are funded in a similar fashion, with home loans bundled up into mortgage-backed securities.
The $443 million REA securitization Unison closed on Dec. 22 “allows a wider range of investors to participate in the space of residential equity agreements,” Unison executive Matthew O’Hara said in a statement. “It also increases the efficiency of the market, which should lead to wider adoption amongst homeowners, ultimately leading to a larger, more liquid marketplace that benefits homeowners and investors alike.”
Nomura Securities International Inc. acted as the structuring agent and joint bookrunner, with Barclays Capital Inc. serving as joint bookrunner. Mayer Brown LLP served as the legal representative of the issuer, with purchasers represented by Sidley Austin LLP.
Record home price increases mean that U.S. homeowners have an estimated $10 trillion in “tappable equity” — the amount they can cash out while still retaining 20 percent ownership stake in their homes — according to an analysis by Black Knight. The 35 percent annual growth in tappable equity seen in 2021 left the average mortgage holder with $185,000 in available equity, Black Knight estimates.
But as it seeks to help homeowners Unison faces competition from alternative equity providers like EasyKnock, Fraction, Hometap, Knock, Noah, Patch Homes and Point.
In announcing a $57 million Series C funding round Wednesday, EasyKnock said it had grown its new customers by 200 percent in 2021. EasyKnock, which offers sale-leaseback programs that are available nationwide, plans to use the investment to fund business expansion, rollout new partnerships, and develop new products.
“EasyKnock’s commitment to U.S. homeowners is more important than ever as the economy and the housing market continue to face extreme uncertainty, creating a difficult landscape to navigate,” EasyKnock founder and CEO Jarred Kessler said in a statement. “This new capital investment is taking place at a critical time for the homeowners we serve and will help us continue to realize our mission and expand our offering.”
Last fall, Point announced that it had partnered with housing finance company Redwood Trust Inc. to issue $146 million in asset-backed securities backed entirely by residential home equity investment agreements, which the companies said was the first such deal of its kind.
Unison, which has been investing in homes since 2006 and currently manages $1.3 billion in residential equity agreements, has recently recruited PayPal and eBay veteran Ryan Downs as president, former Silicon Valley Bank executive Scott Case as chief financial officer, and Wells Fargo Securities alumnus Joe Celentano as global head of markets.
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