Transcription:
Jeremy Sicklick (
As we look at the market with rising interest rates, there's just a record amount of home equity out there. It's something like, it is just astronomical. It's something like 11 and a half trillion dollars of home equity. And, in the last year, there's been something like two and a half trillion dollars that has been created, of additional home equity, even in the last quarter, $500 billion. So, it's a massive amount, and as we look at what's happening in the market with rising interest rates, this is one of the growth areas. By way of introduction, I'm Jeremy Ciclik, founder, CEO at House Canary. We focused on using data to accurately value homes and use that in He LOCK and other areas. And so excited to be here today. we've got a great group. To my left we have Jackie Frommer from Figure, Michele Lennon, who leads product for TD Bank. And then we have John McaKinnon, who is, VP product and business development for Hometap. What I'll first start by doing is just letting Jackie, Michelle and John, introduce themselves and give the quick elevator pitch on their companies. And then we'll dive in and talk about a few topics, mainly around growth, the kind of growth that we're seeing, the approach to risk management, and how to think through risk management in this, the approach to, create a great consumer experience and, impediments to growth. So, with that, let me turn it over to Jackie and we'll just go down the line and do some intros.
Jackie Frommer (
Great, thanks. So, I'm Jackie Fromer at Figure, and figure is it technology company that utilizes blockchain to make financial transactions more efficient. We actually have three businesses, payments, marketplace and lending. I'm here to talk about lending. Three years ago we, created a Helo product. We've actually been doing this for three years. We have a bunch of other lending products as well. But, just given, where we are in the market cycle, both in terms of interest rates and home price appreciation, our He Lock product, as you can imagine, has really taken off. It's fully digital. We can approve somebody in five minutes, we can fund in five days, and the five days is really only a function of the fact we have a three day rescission period. Otherwise, we could fund, a lot faster and we originate loans, for ourselves. But we also have a white label program where, where we originate for other lenders. And, we've seen a tremendous amount of demand for that over the last couple of months. and we're also now, about Elantra SAS offering where we're providing our technology, to lenders as well who wanna originate in their own name. And we are both a consumer direct platform. We also with our lender partners, have ellos that are in the middle of our process and recently we've been working with some lenders on developing a wholesale platform.
Michele Lennon (
Thank you. I am, Michelle Lennon and I'm, with TD Bank, and as Jeremy's stated, I'm head of product for both mortgage and Home equity products. And, one of the things that, really intrigued me with TD Bank is I've recently, came over there about six months now. I really walked in with, expectations for what the product suite would be, and was pleasantly surprised by, the breadth and scope of the products that were available, from a home equity perspective, right? It is, the star of the show right now. It is one of those products that, we know in the rising rate environment and, with the home equity, being as high as it is, and the opportunity as high as it is today, that it is a product that we're all kind of falling back to and thinking, about it, even, even more. As we think about TD and the experience that TD brings, we really try and strive to, think about and reimagine that customer journey and the customer experience and, kind of really provide that full experience end to end. So, our hope is that when someone talks to us, we're talking to them about, finding the lending solution that's appropriate to them for their specific need. So, not really driving the product, but driving their needs, and really fulfilling that customer experience in that way. So, thank you.
Jonathan MacKinnon (
I'm John McKennon, from Home Tap. Home Tap is a Boston base financial technology company focused on making home ownership less stressful and more accessible. Our entire focus today is around home equity. Our first product is a home equity investment product that allows homeowners to access the equity in their home without taking on monthly payments or worrying about the burdens of impacting their credit or interest rates. We allow that homeowner to access the cash, based on the current value of their home. And in return Home tap receives a fixed share of the future value of the home. So, we look to create alignment between both Home Tap and the homeowner.
Jeremy Sicklick (
All right. Thanks, everyone. So let's first talk about, momentum and growth that we're seeing in the market. As I mentioned, there's something like 11 and a half trillion dollars of tappable equity. So, if you think of all the equity that homeowners have below a 80% combined loan to value, it's 11 and a half trillion dollars as of now. I'd love to hear, from our group, just how much momentum are you seeing, in the home equity space, maybe starting?
Jackie Frommer (
Yeah, So, we're seeing not surprising a tremendous amount. I think a lot of lenders got out of the home equity space post-crisis, and a lot of them are figuring out how to get back in. We, sort of had done a, like a hundred million a month or so of, equity originations until recently, and we've tripled our volume. And I would say we could, double or triple from there. right now our takeout is sort of what's keeping our volume, where it is, but there is a lot of demand for both customers, as well as lenders because we offer our product out to third parties. We're seeing a lot of mortgage lenders who are, and servicers who are looking to take advantage of the relationships that they have with their customers and do other business with them. really trying to figure out how to get home equity as part of their product suite. and then we're just seeing customers come to us directly. So, there's, a lot of demand out there for the product.
Michele Lennon (
Yeah, There sure is. There really is, the demand is there and, we temper that. I think with, the perspective of, we don't wanna be adversely, selected, right? We have, like she mentioned, there are definitely, big banks that have pulled out, for various reasons. I think it's not just a matter of a risk appetite, it's more of, a capacity play in some effect. But, I think that tempering that, demand, if you will, from a customer perspective and being able to provide, like I said a solution that works for the customer.
Jonathan MacKinnon (
Yeah, I mean, I think, building on what Jackie was saying, we're seeing a similar amount of growth and demand it was building up through last year, but this year has truly taken off. And, I think it's really a combination of factors that has led to what we've seen. But I think overall, what we're seeing in the market, I mean, certainly we've had, close to 10 years of run up in home price appreciation with the last several years being record amounts of home price appreciation. You mentioned at the beginning, homeowners in total are sitting on almost $12 trillion of tappable equity. I think I read in similar report that about two possible over $200,000 on average with the individual home. And if you think about what homeowners are going through now, they have rising inflation, which means the cost of supporting their lifestyle is going up. Many people finance their lifestyle and with rising interest rates, the cost of financing that lifestyle is going up. But what they do have, which is probably one of the healthier portions of their overall portfolio, is that home equity. And so more and more people are exploring how they can access that home equity. And, I think more and more that technology and, the fact that companies like ours exist, it's making it more readily available for them to find options for them to do that. So, I think we're seeing a lot of that demand that's driven by certainly the increase in technology that's come along, but also a lot of the macroeconomic factors that are play today.
Jeremy Sicklick (
That's great. So sounds like there's consistent view of, just real strong demand and, and a lot of momentum here. I think if you take the other side of that, we now are at this all time high of tappable equity. Meanwhile, we're seeing interest rates continue to increase prices of homes start to flatten. And so if you take the other side and balance it, how are you thinking about risk management and how to value these properties in a market that is, starting to really, the momentum's coming out of the home price in the market. We're seeing pricing flatten out and in some markets decline. How do you guys look at valuing the property since that is important as part of a home, a HeLOCK or He loan? And how do you think about the risk management?
Jonathan MacKinnon (
Yeah, I can start and I can take a look at it from the home equity investment perspective, which is, it's something we take very seriously, in everything we do is how we value this home and how we think about the risk related to every opportunity that we look at. We use technology to help us do both. So, as you think about how we value, the home is incredibly important for a home equity investment. Not only because, we need to ensure there's enough equity in there for that investment to be made, but also because we are an equity investor in that home, we need to ensure that we're getting the accuracy of that investor, that valuation as red as possible. So, we leverage AVMs, we have our own, value blend AVM that is taking in puts from leading AVM providers in the industry. We're overlaying our own proprietary algorithms on top of that, and we believe that helps get us to a very accurate, and unbiased valuation of that home. And it also a valuation that we will transact on, that we will invest on, which I think is a key differentiator from other home s that you might see in the market. And then what we're also trying to do front for that homeowner is, bring technology to evaluating the opportunity, with that house and that homeowner as well. And we use early in this process a predictive in Investability model, which, takes in hundreds of factors that go beyond FICO to try and help us quickly determine whether or not this is a investment opportunity that we can pursue to try and give that homeowner as much as possible early in the process and understanding if this is something they want to do and it's something we can work with them on. So, we try and do this as much as possible early to not delay or drag out any of that to the end and, and try and be as transparent as we can early on to get through that for the customer.
Jeremy Sicklick (
Fantastic, and just in your case, John, how long does it take to get sort of this view of certainty of whether they're going to get the loan or not? with or the investment?
Jonathan MacKinnon (
Yeah. You can, complete an inquiry with home, home tap within minutes and have a decision in terms of whether or not you're pre-qualified and, and whether or not there's an opportunity to work with us from there, you do go through in, a process, within the application, and in underwriting that is, from the homeowner's perspective, pretty seamless because of the technology that we built in house to try and make it so, but they can get an understanding of whether they can pre-qualify for home equity investment within minutes on our site.
Jackie Frommer (
Yeah, and I would say we're, similar. We use AVMs, we have a, multifactor approach in terms of, we're looking at AVMs, we're looking at FICO scores, and our, our average CLTV is like running just under 70%. So, I think in a market like today where there has been tremendous home price appreciation, everyone's sort of a little concerned that we're gonna see another 2008, and if, our view at least is if you sort of look at where supply is, we might see a plateauing out of home values, maybe in certain places they decline a little bit, but at a 70% CLTV, you're pretty well protected if you've got good FICO borrowers, in your portfolio. So, we're constantly tweaking. and, sort of we're watching the market and, we've tightened the CLTVs for certain lower, credit quality borrowers. We're, looking at doing other things to augment our AVMs, things like aerial imaging, and other ways to get more comfortable with, the value of the home. We, when we get an avm, we're looking at the confidence in the FSD on that AVM to make sure that we're pretty confident of what that value is. so, we've got a lot of different ways we're triangulating around it, but we've had, and we've been doing this for three years, and it's been yes, a good cycle, but we've had excellent performance on our portfolio.
Michele Lennon (
Yeah. And I think the valuation, methods, I think we all probably think about that, automated valuation and, the majority of our business does flow that way, but the eligibility criteria is, are built in where, you really don't allow, that kind of evaluation method for a riskier loan. So, you have that protection built in. I think also, the idea of, what are we thinking the future might hold, like Jackie said, and I think, all of our, valuation methodologies and as well as our product parameters to her point as well with LTV, they're built really to protect, not just the bank, not just the asset, right. But also the customer. And, sometimes, we have to kind of harness all of that intelligence that we, are good at, and we should be good at, mining, and we should be able to kind of bring that to, the forefront so that the customer understands that, the reason we're not willing to maybe lend, to a hundred percent LTV or what have you is because if the market turns, you could be in a situation. So, I think it's a, it's a balance.
Jeremy Sicklick (
Absolutely, Equity is sort of a term that a lot of people don't actually understand even how much equity they have in their home. And it's, something that I know at our company, through one of our products, we've basically provided, here's your home value, but here's how much equity you have, here's how much debt you have. And helping people actually understand what equity means is a foreign concept for many,
Jackie Frommer (
Right? Yeah, But I think because people do have so much equity, and honestly, if you look at the stock market these days, right, people are looking for, other tools that they can take advantage of in terms of managing their financial situation. And so, I think you're gonna see more people including their homes, equity in things like financial statements and, wealth managers are starting to look at it a lot more closely because there is so much money that is sitting in people's homes, that traditionally they haven't tapped. And so, if you can use it and, either, to get cash out or, as a substitute for some other expensive product like a credit card, you should be using it as long as, sort of the risk is well managed.
Jeremy Sicklick (
That's a, it's a great lead into to the next topic. So let's talk about the customer experience. Historically, when people would get a HeLOCK, if you sort of looked back, a decade or more, it looked more like getting a first mortgage. And so many, consumers over time went to other products, whether it was a personal loan, whether it was credit card, because they were easier. And, that's where a number of fintechs came in and really innovated around that experience. I'm, I'm curious, as you think about what that customer experience in technology looks like and where it's evolving to, I would love to hear how each of you are approaching that and, and sort of the innovation and what that customer's experience is gonna look like through this cycle. Maybe start with you, Michelle, since you've seen a lot of this.
Michele Lennon (
Yeah, sure. So, I don't wanna say banks maybe are advantaged in this way, but in a way, right? we have the ability where we have, a large customer base, we have an asset, the assets that flow through the credit cards that they may use, the mortgages that they may have with us, and we're able to draw insights and customer intelligence. So we're able, I think to, to harness, that intelligence in a way that we're able to use those insights, the, the data that we have on our own customers to, make, the process sometimes, quicker, easier, more efficient. I think on the flip side, I think someone in a, FinTech kind of a, a company as I kind of refer to it, they may be a little bit quicker to adjust to some of the digital, pieces, but, I think we've come a long way in that and I think that, the banks, which is why we're here today, right, is to explore, those avenues a little bit more. We've definitely, driven a lot of, our, focus on, reducing requirements, reducing documentation, right? It doesn't need to sometimes look and feel like a, conventional mortgage if you will. There is some appetite for something in between, and I think that's what we're striving , to get to.
Jackie Frommer (
Yeah, and I would say we're, much more product focused. And so, when we created a product, we were very much focused on creating a very fast digital only customer experience, that, was very easy for the customer to use, similar to a personal alone. And so, if somebody wants to go fully digital, which most of our customers do, it's a much simplified process from the traditional home equity. So, we use avms as we've talked about. We do lean searches instead of full title, so we're not getting title insurance, which is also important because the, it brings the cost, dramatically down and originating, the loan. We, verify people's in income through digital sources like plad. we use e notaries. Our product is a HeLOCK, so, we don't need to go through some of the trade disclosures like Ellie's and CDs. And so, very fast process. Like I said, if, if we didn't have precision, someone could close in less than a day if they wanted to. and so sometimes we actually get customers that say like, Is this really for real? Because I didn't have to do all the things I normally have to do. But that's been our main focus. we're, working with lenders who have customers who have other products. And so those lenders are more focused on how they integrate our product into the overall relationship.
Jeremy Sicklick (
Yeah, I mean, Home Tap is hyper focused on the consumer experience as well. A little bit different maybe from the other two up here. We're in a lot of ways still building out and understanding of an entirely new product category. The home equity investment is still relatively new, and there's a lot of education that we're putting out to ensure that it's well understood. So, we're relying on a lot of other technology companies, financial education sites to help us, educate and reach those consumers. And I think that's an important thing. And it's wonderful that they're there to help consumers self serve their own education even before they get to us. But then we repeat things like that on our site to ensure that we are messaging and helping them understand what the product is. And that requires things like scenario planning and calculators and testimonials and, and other things that can give people a feel for what this product would be like if they were to pursue it. And we try and provide as much technology and invest heavily in technology throughout that process, but we are also, incorporating a single point of contact approach with an investment manager who works with every single one of our customers from the day they complete that, kind of get pre-qualified to the day that investment closes to ensure that they truly understand the product, to make sure it's a good fit for them and a good fit for us. And, over time technology may take on more and more of that, but for where we are now, that approach is really quite essential we think, to helping people really understand this, home equity investment and to ensuring that they have a wonderful experience throughout that process. And for each of you, just to sort of put some numbers to it, roughly how long does it take to get to certainty from when the customer starts the experience, and then how long does it normally take to close?
(
I'll go first. I mean, yours is gonna be the shortest answer.
Jackie Frommer (
Yeah, I already answered.
Jonathan MacKinnon (
But no, we, as I said you can get clarity within minutes, whether you pre-qualified, but, typically it takes a couple of weeks, a few weeks to go from, that point to, receiving cash or the capital that you've closed on. that's still, in a lot of ways faster than the processes that are out there. But as you meant, as we noted, there's a lot of education, it still goes on in our process.
Michele Lennon (
Right? Our prequalification is the same. I mean, doesn't take too long at all a few days, but maybe we're in a little longer than the few weeks. But, but I think it's the aspect of, trying to ensure that you're balancing, the, documentation requirements versus, what we think is appropriate for our risk appetite. Sometimes is a little different. I think we'll probably, lend a lot higher line amount, for instance than some of our peers, right? So, the higher the line amount the more, scrutiny we might put on a file. So it might take a little bit longer.
Jeremy Sicklick (
Well, it seems like really strong growth and you're all creating these great customer experiences that are pretty delightful compared to what people historically got and so I'm curious, as you think ahead, what do you all see as the growth impediments? What's, what's it gonna take to really see the home equity scale to its full potential as we come into this rising interest rate cycle?
Jackie Frommer (
For us, the, biggest impediment we have is just, investor takeout for the product. So, people were a lot of, most people got outta the market, banks were doing it, they were probably following it. So there's not a lot of precedent in terms of, sort of the value of this product versus other products. We're working with the rating agencies we've broaden out our, investor outreach just to get people to understand the product and be comfortable with it. It's sort of a weird product cuz it's not a mortgage and if you get a mortgage person looking at it, they're like, well, why is, don't you have an appraisal and second position or third lane? And so, and it's also not a personal loan. There's all sorts of benefits, relative to a personal loan. So, triangulating to get the right actually people on the investor side, on the rating agency side to understand the product, understand the benefits, understand sort of the risk and value, has been something that we're really pushing on. And, because we've had our product out that we've got three years of experience, which is great. A lot of sort of newer entrances don't have that. But we sort of feel like paving the way with investors and rating agencies is gonna benefit everybody. and so, we wanna see this market grow and we think there's just, a lot of, both consumer demand for it as well as, it's a great product from an investor's standpoint as well.
Jonathan MacKinnon (
Yeah, we we're seeing a lot of the similar things. I think it's, what we gets is really excited is the fact that we feel our product is not only a wonderful product for a homeowners, but it can be a great product for the investors. Well, stronger suggested returns. This is an asset class that's historically uncorrelated to other equity or asset classes or other asset classes. It's an inflation head. So, there's a number of attributes we think are quite compelling for the investor community. It comes a lot to education of the capital markets, education, the investor community in the same way that we've gone about educating the homeowners as well, and then building up the volume and getting to a point where you start to get some of the traditional methods in place to create more velocity in the market, securitizations ratings, things of that nature. All that will come as, as, I think along the way. But it is a process now of continuing to educate that market. And it's also, at this point in time where we've seen a major difference, a major change quite quickly in the overall macro environment. It is just a little bit of the nature of the beast that, when you see that type of change in the markets in rates and then the geopolitical environment out there, investors are oftentimes go back to what's tried and true and, and looking towards newer product. It's, just takes more effort to get in front of them and, and to really build that understanding. And so we invest just like you are a lot of time and resources into building that, education. Absolutely.
Michele Lennon (
From our perspective, I mean, we clearly don't have that as an impediment because we have a portfolio bank to rely on. But, I would say from, from our perspective, I think about the home equity product in general, and I've been in this space forever and, it's one of those products that you, tend to only rely on and focus on. And we up on this stage when, when it's a great environment for the first mortgage space that's not optimal, right? So it's, I think the impediment sometimes is, making sure that the product is prioritized and, not just thought of now when we need it, but that we're thinking about it more long term plan, and a strategy really to kind of get to a place where, even when first mortgage rates do turn around that we are still thinking about and working on and towards, a home equity, strategy that would work, better for us. I feel like sometimes, that gets in the way and we tend to drop it and go onto the next shiny thing and, that's the hope here is that, we just continue that focus and not be an impediment.
Jackie Frommer (
Yeah. And really if you think for consumers versus a credit card or other types of financing, it's really beneficial from a right standpoint. And, so I don't think that necessarily, people have always thought of it as a product that's at their disposal. And, I think this environment with home price appreciation where it is and people's equity where it is, Yeah. People are gonna start realizing like I can.
Jonathan MacKinnon (
I think it goes back to something you said in the beginning, which I think is a really important evolution about how people think about their own balance sheet, right? Your home value or better set your home equity and understanding your home equity. And, and what you can do with it is, should be a part of every conversation you're having, whether it's with a financial planner and thinking about how you can best use your wealth and your assets most advantageously to accomplish your goal short and long term. An,d so hopefully is more and more of this opportunity comes up to access that equity, those type of conversations will be more than norm,
Michele Lennon (
Right.
Jeremy Sicklick (
Well, I'm excited as we're in a tough rate environment right now, but it's clear that there's real customer demand and a real customer need for accessing home equity. It's clear there's gonna be a lot of growth opportunity, whether you're at a depository, a FinTech and IMB and excited to watch the growth and the, solve the customer need in a responsible way. And next year we can sort of come back and say, Okay, how much did it grow? How much was there a capital market that was really created, to support this? And, appreciate all of you joining for the conversation today.
Michele Lennon (
Thanks, Jeremy. Thanks
Jeremy Sicklick (
You Thank.