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San Francisco-based fintech company\u00a0Unison<\/strong>\u00a0recently completed a $443 million private-label offering backed by an emerging class of home-equity assets in which investors and the homeowners share in both the upside and downside of a property\u2019s value over time.<\/p>\n Unison expects to bring three additional securitization deals to market in 2022, according to a company executive.\u00a0The company, through its fintech platform, offers homeowners<\/a> the opportunity to tap their home equity without taking out a loan \u2014 via Unison\u2019s shared home-equity product called a residential equity agreement (REA).<\/p>\n Unison, launched in 2004, joins another California-based fintech competitor, Point<\/strong>, in pursuing efforts to tap the secondary market<\/a> to create more liquidity for the financing of shared home-equity contracts. This past fall, Point partnered with Redwood Trust<\/strong><\/a> to complete what they described as a first-of-its-kind $146 million securitization deal backed by contracts that are similar to REAs. <\/p>\n Bo Stern, head of portfolio strategy and risk for Mill Valley, California-based Redwood Trust, described the Point securitization deal at the time as involving \u201ca new asset class that allows both consumers and investors to access one of the biggest markets in the world\u201d \u2014 specifically, the massive homeowners\u2019 equity market.<\/p>\n \u201cHome prices have been increasing rapidly over the past year, creating a record $24 trillion of wealth,\u201d Unison said in announcing its new securitization transaction, which closed in late December 2021. \u201c\u2026 This transaction offers the opportunity for investors to access residential real estate equity and increases liquidity for homeowners across the country looking to monetize the equity in one of their most valuable assets \u2014 their homes.\u201d<\/p>\n The joint underwriters for the Unison securitization deal, conducted through the conduit Unison 2021-1, were Nomura Securities<\/strong> and Barclays Capital<\/strong>. Matthew O\u2019Hara, head of portfolio management and research at Unison Investment Management<\/strong>, which is under the Unison umbrella, confirmed that three additional securitization deals are in the works for this year.<\/p>\n \u201cThey probably won\u2019t be as big as the current one,\u201d O\u2019Hara said, \u201cbut \u2026 assuming home prices continue to appreciate as they have been historically, then the [securitization] deal side will have to grow commensurately.\u201d<\/p>\n Unison, through an REA contract, advances the homeowner a portion of the equity in the property in exchange for a lien position and a share of the home\u2019s future appreciation. Unison also shares some of the downside if the property loses value over the course of the contract.<\/p>\n Unison, through its recently announced offering, Unison 2021-1, is securitizing existing REA assets it originated and are now held in an investment fund managed by the company. O\u2019Hara said Unison is currently in discussions with a couple of bond-rating firms to help determine the best framework for rating future REA securitizations \u2014 with the goal of having a rating-agency review Unison\u2019s third REI securitization planned for this year.<\/p>\n \u201cMortgages have existed for 2,000 years, and there\u2019s even a reference to them in Roman writings,\u201d O\u2019Hara said. \u201cSo, the idea of a mortgage is well understood and it\u2019s a huge multitrillion dollar market.<\/p>\n \u201cWe [the shared home-equity industry] are not a multi-trillion market. We\u2019re smaller and, as a result, they [rating agencies] have to understand what the [REI] contracts are, and how putting them into a pool, chopping them up and selling it in bonds behaves on top of those contracts.\u201d<\/p>\n The total value of homes Unison has invested in across some 200 metro areas exceeds $5 billion, according to its website, and those assets continue to grow. The company currently has some 8,500 residential equity agreements in place, according to O\u2019Hara, and that number is projected to approach 12,000 by year\u2019s end. <\/p>\n The total asset value of Unison\u2019s REA assets now stands at $1.3 billion, according to the company, up from $165 million as of the first quarter of 2018 \u2014 with the annualized net return on REA assets under management since 2010 averaging 16.3%, according to the company.<\/p>\n \u201cSo, I\u2019m responsible for Unison Investment Management, which is part of Unison, and what we do is we raise money from institutional investors primarily,\u201d O\u2019Hara said. \u201cThat’s where the money comes from to fund them, [the REAs].\u201d<\/p>\n As part of a Unison\u2019s REA product, the company will invest up to 17.5% of a home\u2019s value after a 2.5% risk-adjustment haircut on the value of the property. The company and homeowner then share in any appreciation, or depreciation, of the home\u2019s value over the course of the contract. <\/p>\n The homeowner has up to 30 years to pay off the initial investment, plus Unison\u2019s appreciation cut, through a sale or refinancing of the home \u2014 or through a contract buyout after three-year lock-in period. As part of the REA, Unison\u2019s share of the home\u2019s appreciation can range from 20% to 70%, depending on size of the equity investment advanced.<\/p>\n \u201cWe\u2019re sitting in an equity position side by side with the homeowner,\u201d O\u2019Hara said. \u201cSo, if the price goes up, the homeowner benefits, and we benefit as well. <\/p>\n \u201cIf the price goes down, the homeowners are losing some of their equity, but we are also losing equity in our position at the same time.\u201d<\/p>\n Although each has slight variations, Unison\u2019s REAs are similar to shared home-equity contracts offered through other companies competing in the space, including fintech Point, which describes its product as a home-equity investment contract, or HEI.<\/p>\n The Redwood\/Point HEI-backed securitization deal, which closed in late September 2021, involved issuing $146 million<\/a> in securities through a conduit dubbed Point Securitization Trust 2021-1. <\/p>\n \u201cWe expect to be back in the market sometime next year,\u201d Redwood\u2019s Stern said in 2021 at the time the deal was announced. \u201cSince this [HEI securitization] deal was the first of its kind, we are still determining the next deal size and frequency of future securitizations. The decision will be contingent on many factors, including market conditions, origination outlook, etc.\u201d <\/p>\n Like the Redwood\/Point offering, the bondholders in the Unison deal will get paid a monthly coupon from the cash flow generated by contract pay-offs. O\u2019Hara said the Unison securitization deal assumes an annualized REI contract turnover rate of 12% to 15%.<\/p>\n \u201cIf payments come in earlier or there\u2019s a higher HPA [home price appreciation] that will be used to pay down the bonds ahead of the expected call dates,\u201d O\u2019Hara said.<\/p>\n As for Redwood, officials there declined to discuss at this time whether the company is pursuing any HEI-backed securitization deals for 2022. \u201cRedwood has an earnings release on Wednesday (February 9) and won\u2019t be able to comment,\u201d a company spokesperson said. <\/p>\n O\u2019Hara added that in the case of Unison, the securitization market is an optimal way for the company to decrease its cost of financing while also creating more liquidity, with the goal of lowering REI costs for homeowners.<\/p>\n \u201cObviously, we want to be able to finance our positions less expensively,\u201d O\u2019Hara said \u201cThe goal here, however, is not to make it cheaper for us to maximize the return. Rather, it\u2019s to lower the cost of financing [and thereby] lower the cost to homeowners over time, so more people will find it attractive to do an REA contract. <\/p>\n \u201cThe investors will still get a return similar to what they’re getting today, but homeowners get a better deal, so it\u2019s cheaper for them. And everybody\u2019s happy.\u201d<\/p>\n<\/div>\n<\/div>\n The post Home-equity investment pioneer Unison taps the secondary market<\/a> appeared first on HousingWire<\/a>.<\/p>\n