Bond investor PIMCO bets on home-equity market

Rising home prices continue to fuel the growth of the nation’s multi-trillion dollar home-equity market, a fact not lost on behemoth investment-management firm PIMCO.

The Newport Beach, California company has so far this year issued three-private-label transactions backed by home equity lines of credit and home-equity loans tied to a mix of performing and reperforming loans

“The loans were originated or acquired by affiliates of Capital One, National Association (which exited the mortgage originations business in 2018) and subsequently purchased by an affiliate of a PIMCO-managed private fund in a bulk sale,” states bond-rating firm Fitch Ratings in the presale reports for all three of the offerings in 2021, including the most recent deal reviewed by Fitch on November 10. “The loans are serviced by Rushmore Loan Management Services.”

PIMCO, founded in 1971, has a long history of aggregating residential mortgage loans as well as managing assets for corporations, sovereign wealth funds, pension funds and other investors. As of the end of September, it had some $2.2 trillion under management.

Presale reports prepared by Fitch in March, May and November for PIMCO’s three issuances to date show the deals involve a total of 13,858 loans valued at $773 million, with an aggregate maximum available draw amount of $400 million as of the cutoff dates for the deals. 

“Approximately 24.9% of the [loan] pool is concentrated in Maryland per the transaction documents,” states the November 10 Fitch presale report for PIMCO’s latest offering — issued through a conduit called BRAVO Residential Funding Trust 2021-HE3. For the earlier offerings, Maryland also ranked as the leading state for the loan originations, at 25.1% for 2021-HE1 and 23.8% for 2021-HE2.

PIMCO is not alone in looking to tap into the trillions of dollars now tied up nationwide in homeowner equity. Mill Valley, California-based Redwood Trust sees the market sector as fertile ground as well.

“There was a record amount of homes purchased this year with cash by investors and by consumers,” CEO Christopher Abate said at the company’s investor conference held this past September in New York City. “And if we can better bank those investors and consumers, it could be just a massive addressable market for the company.”

As part of that effort, Redwood Trust has partnered with Palo Alto, California-based Point, a fintech firm that markets a product called a home-equity investment contract, or an HEI. The HEI contracts provide homeowners with cash upfront in exchange for a contract providing Point with a slice of the homeowner’s equity. 

In October, Redwood and Point announced that they had completed a first-of-its-kind securitization supported by those HEI contracts. The private-placement transaction, which closed in late September, involved issuing $146 million in securities through a conduit dubbed Point Securitization Trust 2021-1. 

“Homeowners across the country are turning to home-equity investments in record numbers to unlock more than $20 trillion in illiquid wealth tied up in their homes,” said Eddie Lim, co-founder and CEO of Point. “This first-of-its-kind securitization is a testament to the investments we’ve made in Point’s technology platform. …”

Redwood’s head of portfolio strategy and risk, Bo Stern, said the company hopes to be back in the market next year with similar HEI offerings, assuming market conditions remain conducive.
“The $11 trillion in mortgage debt outstanding [nationwide] is linked to $9 trillion of household equity, with $14 trillion of homes owned in cash,” states a document prepared by Redwood Trust for its September investor conference.

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