Redwood Trust and home equity fintech lender Point have closed on a $139 million bond secured by 1,577 home equity investment (HEI) contracts.
The two companies issued the first-ever securitization backed entirely by HEIs in 2021, a bet that rising home-price appreciation can benefit consumers in the short-term and investors in the long-term.
Point closed on its first bond issuance rated by DBRS Morningstar on Oct. 31. One $117 million tranche of the bonds has a single-A rating while the other at $22 million has a triple-B-minus rating.
“The financing of HEIs through the development of a liquid and efficient market for rated HEI bond issuance will prove to be a pivotal moment in housing finance, one that will bolster both homeownership and overall financial health in this country,” Eddie Lim, co-founder and CEO of Point, said in a statement.
Meanwhile, Eoin Matthews, co-founder of Point, told The Wall Street Journal that the firm expects to complete several bond deals per year.
In October, Unlock Technologies, another home-equity investment firm, and Saluda Grade, a private real estate investment firm, completed the first-ever securitization rated by DBRS Morningstar.
The rating agency, which was the first to provide a rating for the asset class, published a new methodology for HEIs in July 2023. Unison, another HEI firm, is working on its first deal, too, The Wall Street Journal reported.
The rating of those securities is supposed to attract new pools of capital to the HEI asset class, such as insurance companies and money managers who are restricted to investing in rated investment-grade securities.
Redwood sees this securitization as a major milestone to provide more liquidity to the space, allowing HEI companies to assist more homebuyers. While Americans sit on approximately $32 trillion in home equity, only 50% of homeowners can tap into that wealth.
Nomura Securities International Inc. was the sole-structuring agent for the issuance.
