Mortgage

Fractional home-equity lender Point raises $115 million 

This latest venture-capital funding round will help expand the fintech’s market reach and product menu

Fintech and fractional home-equity lender Point has raised an additional $115 million through a Series C fundraising round led by venture capital firm WestCap

The capital will be used to accelerate Point’s growth in the $25 trillion home-equity market, according to the company’s co-founder and CEO Eddie Lim. The Palo Alto, California-based Point plans to use the funding to expand its product line as well as its market footprint — from an existing 16 states and the District of Columbia to 28 markets over the next year.

Point raised about $54 million in venture capital through three previous funding rounds, according to business-information platform Crunchbase. The venture capital investment is in addition to $1 billion in separate capital commitments from investors that Point has lined up to help fund what it calls home-equity investment (HEI) contracts.

“We expect this additional capital to accelerate our growth as we help cash-constrained homeowners and home buyers build financial stability and achieve their financial dreams,” Lim said. 

Point’s HEI contracts — which have 10- or 30-year maturities, the latter the standard since early 2020 — address many variables in a complicated, nuanced housing market. The general premise, however, is that Point provides the homeowner with cash upfront in exchange for a contract providing the company with a slice of the homeowner’s equity. That share is typically around 10 percent or so. 

Plus, Point gets a cut — up to a preset cap — of the home’s future appreciation after making a 15% to 20% downward adjustment to the home’s market value at the time the HEI contract is signed to account for its risk. Point also shares some of the downside risk with the homeowner in the event the home price drops. 

Homeowners, in turn, get to cash out a slice of their home equity with no payments due until the contract matures. There are no prepayment penalties, and the payoff is achieved via a home sale, refinancing or after the HEI contract is otherwise bought out by the homeowner.

Also participating in Point’s latest Series C funding round were existing investors Andreessen Horowitz, Ribbit Capital, Redwood Trust, Atalaya Capital Management and DAG Ventures — along with new investors Deer Park Road Management, The Palisades Group and Alpaca VC.

Last year, investor Redwood and Point, the latter founded in 2014, completed a first-of-its- kind securitization backed by HEI contracts. The private-label securities (PLS) transaction, which closed in late September 2021, involved issuing $146 million in securities through a conduit dubbed Point Securitization Trust 2021-1. 

The unrated PLS offering was structured in two tiers — with $120 million of unrated senior class A-1 notes and about $26 million of unrated class A-2 securities. Bo Stern, head of portfolio strategy and risk for Redwood, said previously that security holders get paid a monthly coupon from the cash flow generated by HEI contract pay-offs. 

Earlier this year San Francisco-based fintech company Unison completed a $443 million private-label offering backed by fractional home-equity assets — in which investors and the homeowners share in both the upside and downside of a property’s value over time. Similar to Point, Unison, through its fintech platform, offers homeowners the opportunity to tap their home equity without taking out a loan — via Unison’s shared home-equity product called a residential equity agreement (REA). 

Another firm on the cutting edge of the fractional-equity market is Vesta Equity, which offers a platform for home equity investments using blockchain and tokenization, with the tokens, or NFTs, backed by verified real-word real estate. The transactions are conducted in stable coin that can be converted into U.S. dollars or another government-backed currency — known as fiat. 

Vesta, like Point and Unison, allows homeowners to sell a percentage of their equity — in Vesta’s case funded by stable-coin investors. In exchange, homeowners can use the funds as they wish while retaining full rights to their property. Upon sale of the home, the percentage of the equity acquired by investors is disbursed to them through Vesta Equity.

“Most Americans have the majority of their wealth tied up in their home, limiting their ability to cover unforeseen expenses or diversify wealth,” said Laurence Tosi, founder and managing partner at WestCap. “Point has created … [a] solution that empowers homeowners to utilize their home equity to eliminate debt, overcome periods of financial hardship and unlock new opportunities for wealth without taking the risk of traditional term loans.”

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