Early answers to pressing Home Equity markets questions

How are you investing in the Home Equity markets?
We are a Forward Flow investor in HEI contracts, additionally we own bonds off the public securitizations, and we will also be contributing contracts to securitizations in the 2^nd half of 2025.

How will the new Trump Presidency impact the Home Equity market?
The Trump administration appears to be focused on deregulation and for the time being they have put a moratorium on CFPB legacy actions, which likely means that the idea of the CFPB amicus brief which called for contracts to fall under the Truth in Lending act, will likely be tabled until the next administration. Additionally, any Federal challenges to the merits of HEI as a contract vs. a loan will also be on the back burner, which is a net positive. With that said, we feel like this has been challenged in the courts and the state courts have spoken, but this still feels like a state by state issue.

Which state laws or legal cases are cause for concern?
Massachusetts is the most recent state to challenge the merits of HEI contracts in Comstock vs. Steinbergh, however Connecticut, Illinois and Maryland have already passed laws that declare that HEI contracts are loans; as a result, state law and actions need to be closely monitored. But clearly the 4 aforementioned are Do Not Originate states.

What are the risks you are looking at? Due diligence you are performing?
We believe that the origination process, the clarity of the contract and the way the contract works, the way it is designed, and the way the repayment works need to be clearly defined and so long as best practices are followed in terms of marketing, advertising and so long as the states you originate in you have MLS licenses, we believe that you are originating in the most conservative fashion, which in general means we are comfortable with those contracts. Understanding the contracts and the details of the approach of the different originators is paramount in the diligence process.

What are your ROI expectations? Have they been meet so far?
For public securitization bonds, they trade at +290 to +315 which offers nice value vs. other RMBS products; so in the case of bonds you are looking at yields of >7%. For contracts, it depends if you are holding to maturity or if you are selling into a securitization. With that said, the IRR is a function of execution but also on the expected timing of repayment and of course the HPA environment. In general, on an unlevered basis, we see IRR profiles that are >12% for contracts on an FF basis.

What kind of market growth are you expecting over the next year? 5 years?
Since 2021, we have only seen $2.8bln+ in securitizations, of which nearly half of the deal flow came in 2024. Market growth in this space should be meteoric over the next year and over the next 3-5yrs. We believe that origination volumes will grow from ~$1.2bln in 2024, to at least $2.5bln in 2025, with the potential to see origination growth into the $3blns, depending on execution of the different platforms and the effectiveness of marketing along with state expansion. Given that we believe the market size the is eligible for an HEI contract is more like $250bln, we see medium to longer term growth in the space with origination volumes exceeding $5bln/year within a few years.

Tell us about your newest product/home equity investment.
At Antarctica Capital, as a buyer of HEI contracts in Forward Flow form, we created the first and only privately rated structure that is Insurance company balance sheet friendly, this structure is known as HEDI or ‘Home Equity Debt Investment’. This structure was put into place at the end of September 2024 and has been taking delivery of new HEI contracts on a weekly basis since. HEDI has the ability to buy $300mm in HEI contracts.

What has been your latest technology improvement? AI implementation?
As an investor and not an originator our approach is more focused on the originations and our surveillance of the contracts we are buying. However, we are also working with another Antarctica Capital entity that is focused on Big Data and AI with the goal of honing in on the contract profile that can maximize the IRR; however this requires a lot of data and observations, so it will take time, however in early stage Beta Testing, we are encouraged by what we have seen to date.

As Baseball spring training begins how do you think your team looks?
As a NY Yankee fan, I am devastated by the loss of Juan Soto, however I think the Yankees have done a great job in replacing Soto as well as addressing other areas of weakness and think they will make a run, similar to that of last year. However, the Dodgers are clearly the team to beat and unfortunately the Mets also made tremendous strides, simply with the addition of Soto.

How will the new Trump Presidency impact the Home Equity market?
It’s anyone’s guess but one thing is for certain…it’s going to be very good or very bad. If it’s bad and there’s recession home prices will drop, and investor will sideline their interest in HEI and make investments elsewhere.

Which state laws or legal cases are cause for concern?
Obvious ones are WA, OR, NJ, MD. This will be decided by the courts and the states.

What kind of market growth are you expecting over the next year? 5 years?
Absent a recession, we see strong growth in the HEI and hybrid loan products with and some interest in home values.

Tell us about your newest product/home equity investment.
Mitigating the regulatory risks with product enhancements.

What has been your latest technology improvement? AI implementation?
Very important in our marketing and underwriting.

As Baseball spring training begins how do you think your team looks?
Ho hum, MLB needs some help.

How will the new Trump Presidency impact the Home Equity market?
Trump’s policy is pro de-regulation & that should help originators expand into mortgage products – including 2^nd liens.

Which state laws or legal cases are cause for concern?
Maryland laws around licensing.

What are the risks you are looking at? Due diligence you are performing?
Potential increases in delinquencies and over-leveraged consumers.

What kind of market growth are you expecting over the next year? 5 years?
40-50% market growth.

How are you investing in the Home Equity markets?
Through our CHEIFS product, which allows advisors to allocate their homeowner’s clients entire balance sheet more efficiently, including dormant home equity, towards insurance, investment and other financial products and services.

Which state laws or legal cases are cause for concern?
NJ and MA are the most obvious, but we believe it is a good thing that states are focused on the sector, if the ultimate outcome is greater clarity around disclosures.

What are the risks you are looking at? Due diligence you are performing?
We spent 2+ years examining all the risks in the hei space, premium financing space, and advisory distribution space. Our business model reflects that due diligence.

What kind of market growth are you expecting over the next year? 5 years?
Significant, given the transformational opportunity to change the way insurance is bought & sold, and the enormous scale associated with a distribution network of insurance and financial advisors.

Tell us about your newest product/home equity investment.
CHEIFS is a forward sale contract, capped at a 50% equity share with an overall cost cap of 12.99%, reflecting the efficiency of distribution referral network.

What has been your latest technology improvement? AI implementation?
Our origination technology, core, is functional and efficient; our website is now interactive; and we are partnering with software companies in the insurance point of sale space to incorporate CHEIFS as an insurance funding alternative.

As Baseball spring training begins how do you think your team looks?
Great! Go Yankees.

How are you investing in the Home Equity markets?
We are actively reviewing and purchasing existing 1st and 2nd lien HELOCs across the county, currently (primarily TX at the moment).

How will the new Trump Presidency impact the Home Equity market?
This is hard to predict. The long and short will come down to how successful DOGE is in reducing inflation by hitting their $1TRN mark of cuts from the deficit which will directly affect rates thus affecting RE-value performance and equity growth thus spurring more HELOC activities in the market. That is my primary indicator when looking at this from a bird's eye view. Also, how the CFPB will be affected as well.

Which state laws or legal cases are cause for concern?
States of concern for our strategy team are the jurisdictions that behave poorly/badly in the presence of downward pressure across the board. Legal action to keep an eye on is the CFPB's potential legal action with regards to Truth in Lending Act requirements in light of the massive scaling of HEC/HELOCs that occurred over the past 4-5 years due to the ferocious appetite of the secondary market to securitize HECs/HELOCs.

What are the risks you are looking at? Due diligence you are performing?
The risks we review are always focused on the credit worthiness of the borrower and how much credit has been extended to said borrower prior to origination of the HELOC. Another factor of course is the property's value performance and the risk analysis that goes into predicting where that market may go during the course of the life of the loan.

What are you ROI expectations? Have they met so far?
With HELOCs our ROI expectations are in the very high single digits to mid teens depending on the quality of the asset/borrower.

What kind of market growth are you expecting over the next year? 5 years?
We expect this market to see changes in the next 5 years but it is our opinion that this, again, will depend on rates, administrative moments at the FED level and most of all deficit reduction. What changes will occur is up for debate. If DOGE is a wild success and rates fall, we feel HELOCs will balance out or maybe even flatten as capital will shift back to traditional loan products. If the rates continue to rise or hold steady, HELOCs will pump as they provide a higher-yield end product for investors and wall street.

Tell us about your newest product/home equity investment.
Our newest product is freshly minted capital to buy existing HELOCs and provide liquidity to the secondary market.

What has been your latest technology improvement? AI implementation?
We are in the process of exploring internal ways of scaling initial diligence and prelim doc review using AI at this point.

How are you investing in the Home Equity markets?
2^nd Liens (CES/HELOC) bonds in primary secondary market. Actively looking at whole loan opportunities in CES/HELOC/HEI.

How will the new Trump Presidency impact the Home Equity market?
For the CES/HELOC don’t expect a major impact. See this as a rates driven sectors rather than policy driven. For HEI sector, its probably net positive with deregulation.

Which state laws or legal cases are cause for concern?
Maryland.

What are the risks you are looking at? Due diligence you are performing?
Rate risk, outflows from fixed income funds, recent uptick in delinquencies in mortgages

What are you ROI expectations? Have they been meet so far?
Double digit returns.

What kind of market growth are you expecting over the next year? 5 years? -
Next year expect 2^nd lien issuance to increase by 40-50% this year.

Tell us about your newest product/home equity investment
The HEI hybrid loan product looks promising but still very early stages.

As Baseball spring training begins how do you think your team looks?
Yankees losing Soto isn’t great. Rest of the team needs to step up and hope they repeat last season and outperform expectations.

How are you investing in the Home Equity markets?
We have been somewhat active in trading Home Equity loans between financial institutions (mostly HELOC and Closed end seconds).

As Baseball spring training begins how do you think your team looks?
Hope springs eternal at Wrigley Field.

How are you investing in the Home Equity markets?
Ownify's investment structure is a fractional ownership / fractional rental contract. So our investment in the home equity of each individual home in our portfolio starts out as a 28% stake in each home which gets sold down 20% over five years. At the same time, our customers increase their equity stake from 2% to 10% during the same time period before buying out the home entirely. The remaining 70% of each home is debt-financed. What's unique about Ownify's structure compared to other home equity investments is that our contract generates home price appreciation as well as rental income through its duration for the fraction of the home that is owned by investors.

How will the new Trump Presidency impact the Home Equity market?
The short-term impact of tariffs on building materials and the pressure of potential deportations on labor markets will likely increase housing costs. At the same time, those policies might contribute to a recession which should lower short-term interest rates, providing some relief for builders / fix&flip. The bond market is currently pricing in a higher likelihood of a recession through a lower 10-yr treasury rate, relieving some of the housing affordability pressure.

Which state laws or legal cases are cause for concern?
There are nine proposed state-level bills limiting the ability for corporate landlords to hold and rent single family homes( Arizona, Connecticut, Indiana, New Hampshire, New York, Oklahoma, Texas, Utah, Virginia) While I don't those bills to pass, the general direction of legislatures blaming corporate ownership for the lack of housing affordability is worrisome.

What are the risks you are looking at? Due diligence you are performing?
One of the biggest risks we're tracking closely are insurance rates by state and market. As global warming increases the exposure to climate-induced losses and extreme weather events, the cost of insurance will have a meaningful impact on house price appreciation, possibly outweighing the impact of interest rates!

What are you ROI expectations? Have they been meet so far?
We're targeting 16% IRR, split between by 5% cash yield and 11% equity appreciation. Thus far, we've been achieving those targets.

What kind of market growth are you expecting over the next year? 5 years?
We're early in the adoption cycle for fractional ownership structures. For our structure, we expect significant growth (8-10x per year) for the foreseeable future, driven by a continued lack of first-time buyer affordability. I don't see the root causes of house price appreciation changing (lack of supply, especially in desirable markets, interest rates, down payment requirements).

Tell us about your newest product/home equity investment.
We launched our fractional ownership structure into the market last year in Raleigh / Durham and are now expanding to other markets (Charlotte, Nashville, Dallas). Rather than a down payment assistance contract or a sale / leaseback structure, our product allows a renter to become a fractional owner of a home over time, by buying equity in the home. The innovation in our structure is that we're issuing 10,000 "bricks" as bona-fide ownership interests in each home (expressed as LLC membership interests). Customers rent the bricks they haven't bought while buying incremental bricks every month. This creates cash yield and home price appreciation for investors while giving the customer the ability to build equity. At the same time, the co-ownership structure aligns incentives and we've seen really strong results coming out of that (100% occupancy, no late pays, 60% lower maintenance costs).

What has been your latest technology improvement? AI implementation?
Last week we implemented an AI bot to automate pricing of our contracts.

As Baseball spring training begins how do you think your team looks?
I've only lived in the US for 30 years, not long enough to have an appreciation for the nuances of baseball... But I'm excited about the World Cup next year!

How are you investing in the Home Equity markets?
As an LP (investor) as well as funding AI for improving operational efficiency of HEIs and HELOCs.

How will the new Trump Presidency impact the Home Equity market?
CFPB is basically neutered which will be welcome in the short term but will cause long term uncertainty. Private credit will be attractive as long as the trade war keeps equities unattractive and 10 year yields near 4% leading the increased institutional demand for HEIs and HELOC to generate alpha at low beta.

Which state laws or legal cases are cause for concern?
Reports from blue states seem concerning but not defeating.

What are the risks you are looking at? Due diligence you are performing?
Recharacterization of HEIs is only mitigated by compliance. Rate uncertainty is priced in but global geopolitical risk isn't yet.

What are you ROI expectations? Have they been meet so far?
Mostly met as a LP barring a loss from Palisades. Unmet as a GP as the return on equity hasn't been realized yet.

What kind of market growth are you expecting over the next year? 5 years?
Hard to be over optimistic but also hard to be over pessimistic.

Tell us about your newest product/home equity investment.
AI to originate HEIs, call "Sophie" on +1 (315) 954-4827.

What has been your latest technology improvement? AI implementation?
Call or Text "Sophie" your HEI originator on +1 (315) 954-4827.

As Baseball spring training begins how do you think your team looks?
Pittsburgh Pirates haven't crossed .500 since 2018, much unlike their local NFL counterpart.