Introduction to Home Equity Investments ("HEI")
March 2024
Cautionary Statement
This presentation (the "Presentation") is provided for general informational purposes. The Presentation is not an offer to sell, or a solicitation of an offer to buy, securities or HEI, nor is it an offer to originate, or a solicitation of an offer to originate, HEI. By accepting the Presentation, the recipient acknowledges and agrees to the matters set forth below in this notice.
Redwood makes no representation or warranty (express or implied) regarding the adequacy, accuracy or completeness of any information in the Presentation. Information in the Presentation is introductory and is not intended to be complete, and such information is qualified in its entirety. Any opinions or estimates contained in the Presentation represent the judgment of Redwood at this time, and are subject to change without notice. Interested parties are advised to contact Redwood for more information.
The Presentation is not intended to provide, and must not be relied upon for, accounting, legal, regulatory, tax, business, financial or related advice or investment recommendations. No person providing the Presentation is acting as fiduciary or advisor with respect to the Presentation. You must consult with your own advisors as to the legal, regulatory, tax, business, financial, investment and other aspects of the Presentation.
The Presentation contains a number of generalizations, estimates and critical assumptions. While we believe the generalizations, estimates and assumptions are reasonable, we make no assurances regarding their accuracy. Projections and forecasts are inherently uncertain and Redwood undertakes no obligation to update the information in this Presentation. Accordingly, you should not place undue reliance on these generalizations, estimates and assumptions.
Aspire is a home equity investment platform owned by Redwood Trust, Inc. Aspire HEI agreements are provided and administered by RWT Home Options, Inc., Aspire 3P, LLC. Aspire RWT, LLC, and Aspire HEI, Inc., all of which are wholly owned subsidiaries of Redwood Trust, Inc. For information about licenses held by Aspire, please visit http://www.aspirehei.com/entity-licenses.
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Introduction
Since inception, Redwood Trust has focused on providing liquidity to parts of the U.S. residential housing market that are not well-served by government programs.
After years of supporting the housing market through our Residential and Business Purpose Lending platforms, we began investing in residential home equity investments ("HEI") in 2019, and launched our own in-house HEI origination platform, Aspire, in 2023.
As the value of Americans' home equity has grown to record levels, the current environment has made accessing it costlier and less efficient. Through HEI, we strive to help more homeowners efficiently access their equity to help pay for renovations, fund retirement, or reduce consumer debt. Importantly, HEI facilitates this access without the homeowner taking on additional debt or another costly monthly payment. We look forward to helping this product achieve further scale and relevance to help more homeowners in the years ahead.
In the pages that follow, we are providing institutional investors with educational information on HEI in general, common product terms, financing, and more information on Redwood's own HEI platform, Aspire.
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What is an HEI?
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What is an HEI?
Home Equity Investments (HEI):
HEI enable homeowners to access existing home equity without a sale, refinance, or home equity loan
An HEI is not a loan - with an HEI, the customer makes no monthly principal or interest payments
Instead, the homeowner shares a portion of their home's future change in value with the HEI Investor
The homeowner can use the funds received at origination as they see fit: to renovate their home, pay off debt, or fund retirement, among many other possibilities
HEI contracts are typically structured as either (1) a real estate option contract, or (2) a forward-salecontract, in either case, secured by a lien against the home
TODAY | UP TO 30 YEARS LATER | |
Homeowner receives: | Investor receives: |
A lump sum cash payment (up to a maximum size, e.g.; $250k-500k) by tapping into existing home equity
Return of accessed equity plus or minus a share of the change in valueof the home
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How an HEI Works
Qualified homeowner receives an upfront lump-sumof cash in exchange for return of accessed equity plus or minus a share of the future change in value of their home
Homeowner has discretion over use of the cash - e.g., pay off debt, renovate, help fund retirement, etc.
Attractive terms - no monthly payments and homeowner's "cost of capital" is typically capped
Homeowner can generally exit the agreement at any time - usually through a sale or
refinance of the home
Investor's right to receive future share of home value is secured by a lien recorded on the property
Structural risk adjustments provide investor downside protection from home valuation and other risks (e.g., risk adjustment or discount)
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Market Opportunity
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U.S. Home Equity: The Addressable Market is Enormous
Homeowners' equity has almost tripled since 2013
Residential Real Estate Market(1)
$45,000
$40,000
$35,000
$30,000 $25,000 $20,000
$15,000
$10,000 $5,000 $0
12/31/2013 | 3/31/2014 | 6/30/2014 | 9/30/2014 | 12/31/2014 | 3/31/2015 | 6/30/2015 | 9/30/2015 | 12/31/2015 | 3/31/2016 | 6/30/2016 | 9/30/2016 | 12/31/2016 | 3/31/2017 | 6/30/2017 | 9/30/2017 | 12/31/2017 | 3/31/2018 | 6/30/2018 | 9/30/2018 | 12/31/2018 | 3/31/2019 | 6/30/2019 | 9/30/2019 | 12/31/2019 | 3/31/2020 | 6/30/2020 | 9/30/2020 | 12/31/2020 | 3/31/2021 | 6/30/2021 | 9/30/2021 | 12/31/2021 | 3/31/2022 | 6/30/2022 | 9/30/2022 | 12/31/2022 | 3/31/2023 | 6/30/2023 |
Homeowner's Equity | Mortgage Debt Outstanding | |||||||||||||||||||||||||||||||||||||
$44T
Market Cap:
U.S. Housing Stock
31%
Loan to Value
$30T+
Net Equity
Source: Source: Federal Reserve, Piper Sandler. Data Q4'13 through Q2'23. | 8 |
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Homeowners Have Built a Considerable Amount of Equity in Their Homes
Illustrative Example of Home Equity Growth
$400,000
$77,260$172,529
$15,270
$80,000
$320,000
Home Purchase | Mortgage Amount | Initial Equity | Principal Payments | Home Price | Equity in Home |
Price (07/01/21) | Appreciation | (09/01/23) |
Source: Jefferies. Federal Housing Finance Agency, Freddie Mac. | 9 |
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HEI: Target Use Cases
In today's market, there are a variety of consumer-types that could have interest in accessing the equity in their homes
Target Use Cases Suggest Sizable Total Addressable Market
Home Equity Use Cases | |||||||
Debt Reduction | Fund Retirement | Renovation | Home Purchase | ||||
✓ Pay off debt | ✓ Rising living expenses, | ✓ "Moving-in-place" | ✓ Down payment | ||||
✓ | Reduce monthly | especially healthcare | ✓ | Growing family | contribution | ||
payment obligations | ✓ "Aging-in-place" repairs / | ✓ Accessory dwelling units | ✓ Credit qualification | ||||
Use Case Examples | ✓ Improve credit score | remodel | ✓ Purchasing power | ||||
✓ Lack of emergency | ✓ | Mission serving / level | |||||
funds | playing field for first time | ||||||
home buyers | |||||||
Estimated Number | |||||||
of U.S. | ~25mm | ~38mm | ~9mm | ~300k | |||
Households(1) | |||||||
Estimated TAM(1)(2) | $2.3 trillion | $3.4 trillion | $1 trillion | ~$30 billion | |||
- Source: Federal Reserve, Piper Sandler. Data Q4'13 through Q2'23.
-
Source: Debt Reduction households: Reflects management estimate of U.S. households after consideration of various mortgage market trend reports from
Freddie Mac, the Consumer Financial Protection Bureau, and Transunion. Fund Retirement households: US Census Bureau, 2019 American Community
Survey. Renovation households: 2022-US-Houzz & Home Study: 55% of Homeowners reported a renovation in 2021. 19% of renovations cost more than 50k. | 10 |
3. TAM based on historical average HEI origination sizes. | |
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Disclaimer
Redwood Trust Inc. published this content on 15 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 March 2024 22:16:04 UTC.