BSI Financial Services’ Allen Price: Success of Growing Home Equity Investment Market Depends on Unique Servicing Capabilities

Allen Price is Senior Vice President of Sales, Marketing and Client Success with BSI Financial Services, Irving, Texas. He is a mortgage industry veteran with more than 20 years of experience in the primary and secondary markets. At BSI, Allen focuses on loan subservicing, QC and mortgage servicing rights acquisitions while overseeing Marketing, Transaction and Client Management.

Prior to BSI, Price oversaw sales and strategy as Senior Vice President at RoundPoint Financial Group. His background includes Senior Vice President at ServiceLink’s capital markets group and as Senior Vice President at Nationstar Mortgage, where he led Nationstar’s MSR and subservicing acquisitions. Earlier in his career, Allen was a senior risk executive for BBVA’s residential mortgage portfolio and a Senior Vice President of global structured finance and RMBS trading at Bank of America. Prior to that, Price was senior manager at Fannie Mae from 2000-2006.

In the mortgage industry, what you don’t know can indeed hurt you—or at the very least, leave you trailing behind. This saying could also apply to the home equity investment (HEI) market, which has steadily gained ground over the past couple of years.

Otherwise known as equity sharing, HEIs offer promising opportunities for homeowners and investors alike. While many traditional mortgage products are somewhat restrictive for homebuyers, especially those who don’t have perfect credit, HEIs provide a powerful alternative that can be tailored to the specific needs of every homeowner.

For these reasons, the HEI market is growing faster than ever. But because these products are relatively new, there’s a lot that mortgage industry professionals need to understand about this corner of the housing market—and what it will take for equity sharing to hit the mainstream.

How They’re Unique

The HEI market got a huge boost recently when Unlock, a provider of home equity agreements (HEA), announced the industry’s first rated HEI securitization. That securitization, Unlock HEA Trust 2023-1, consisted of Class A and B notes with ratings of BBB (low) and BB (low) from DBRS Morningstar, which finalized its ratings criteria for the HEA asset class earlier this year. In the meantime, other large mortgage players are considering moves into the equity sharing space, too, as evidenced by Redwood Trust, which just launched its own HEI platform.

These developments have helped vault HEAs and equity sharing into the public consciousness. But what exactly are they?

Simply put, an HEA allows homeowners to access their home’s equity without taking on additional debt. Basically, homeowners agree to share a portion of their home’s future appreciation with an investor in exchange for a lump sum payment, which the homeowner can use for anything from home improvements to paying off high-interest debt.

HEAs can be a valuable tool for homeowners for a variety of reasons. First, they offer liquidity. While a borrower’s home might appreciate in value, until they sell their home, that value is essentially locked away. Of course, home equity loans and home equity lines of credit (HELOCs) are one way homeowners can tap their home equity early. But in both cases, the homeowner is saddled with an additional monthly payment.

With HEAs, the homeowner can take out cash that they don’t need to pay back until their home is sold. Another benefit is that homeowners don’t need to have great credit in order to enter an equity sharing arrangement, whereas traditional home equity loans and HELOCs generally require a better credit history. For homeowners who are already burdened by debt, HEAs offer a no-debt option to improving their financial situation.

Right now, the recent securitization of HEA products and new entrants to the space are opening up new avenues for capital to flow into the HEI market, which is likely to help this segment grow. When it comes to servicing, however, there are some major differences between HEI products, traditional mortgages, and even other home equity solutions that factor into this market’s long-term potential.

The Servicing Difference

Compared to traditional mortgages, servicing HEI assets involves completely different approaches and technical requirements. Typically, servicing loans involves a focus on monthly payments, interest calculations and escrow management. But HEIs don’t really involve any of these things—they demand different skills, tools and processes.

These differences are also evident between HEI products and HELOCs and other home equity loans. Whereas both HEI products and HELOCs allow homeowners to leverage their property’s equity, servicing HEI products generally requires a more dynamic approach that involves specialized technology and higher regulatory standards. For these reasons, generic mortgage servicing platforms are ill-suited for handling these types of products.

For instance, managing risk with HEIs is primarily about automated lien monitoring and property valuation. In a traditional mortgage setting, lien priority is relatively straightforward and unchanging. Because the HEI space is relatively new, however, automated lien monitoring is needed to ensure the investor’s share remains protected in case there are any future incumbrances on a property. Especially in a rapidly fluctuating market, the ability to constantly monitor property liens ensures HEI servicers are able to flag potential issues before they escalate. This generally means managing HEI assets requires the use of a specialized platform that offers real-time property valuations and automated compliance checks.

Another distinction lies in regulatory ratings. To securitize HEIs, servicers must be rated by recognized agencies such as Fitch, S&P and DBRS. This is rarely a requirement for companies that service HELOCs and other home equity products. For HEI servicers, these ratings offer an assurance of credibility and reliability, not just for the servicers but also for the investors and homeowners involved in the agreements.

Ideally, an HEI servicing platform provides transparent investor access to their assets. This typically involves a 24/7 portal that provides investors with real-time insights into their HEI portfolio. This not only fosters investor confidence in this unique market segment but also encourages the flow of further capital, which will be critical to the future of HEI and HEAs.

Why the Future is Bright

While they represent just a fraction of the entire housing market, home equity sharing arrangements are not exactly a brand new development. They’ve actually been around for at least a couple of decades. But with the advent of advanced technology and the securitization of HEI assets now a reality, the future for these products could be about to take off.

According to a recent TransUnion estimate, U.S. homeowners have roughly $2.6 trillion in tappable home equity. And in an economy where interest rates and the prices of goods and services remain high, many homeowners could use extra cash to drop down their debts.

To be sure, these factors are major reasons behind the HEI market’s rise. But for these specialized products to reach their full potential, servicing in the HEI space must also mature. That means specialized tools, rating agency approvals and capabilities that keep HEI providers, investors and borrowers updated and on the same page from the time of disbursements until investors are paid off, either through the home’s sale or some other arrangement.

The best subservicers prepared to handle HEI assets are likely to have cutting-edge technology that places a focus on file quality, compliance and portfolio sustainability, as well as the ability to proactively identify issues involving property values and lien status. They should also have active partnerships with top home equity sharing providers as well as the scalability, infrastructure and staff expertise to manage these assets efficiently.

As more homeowners look toward home equity sharing to improve their finances, and as more HEI assets are securitized, equity sharing arrangements could soon evolve past their niche status and play a major role in the housing market. But as their profile rises, it’s up to all market participants to make sure they remain a safe and reliable option to homeowners who truly need them.

(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)