Meet HEAs and HEIs: The Mortgage Market’s Hot New Home Equity Products
With interest rates expected to remain elevated for the foreseeable future, lenders continue to seek out alternative loan products to recoup volume and maintain profitability. Specifically, home equity offerings provide a bright spot within the current market environment: Since a major portion homeowners hesitate to abandon sub-3% interest rates and balk at the prospect of moving due to low inventory and high prices, many are instead choosing to renovate. And to facilitate their renovations, homeowners are increasingly tapping into home equity.
Today, American homeowners hold a total net equity amount of more than $16.6 billion—a record high. Averaging $298,000 per borrower, this equity provides a tappable resource to facilitate home additions, property improvements, and more. Still, loan products that leverage home equity have long been limited to established offerings such as reverse mortgages (HECMs), HELOCs, and home equity loans.
New home equity options
At the end of 2023, that reality changed with the introduction of home equity agreements (HEAs) and home equity investments (HEIs). A modernization of the reverse mortgage concept, HEAs and HEIs allow homeowners to tap into home equity with no monthly payments, typically on a 10-year term. Unlike HECMs, these offerings don’t have age restrictions—making them widely available to the average homeowner.
“HEAs and HEIs are exciting new products because they offer a powerful way to leverage home equity that’s more financially beneficial than the traditional HELOC for most Americans,” explains Jim Smith, CMB, Maxwell’s Senior Vice President, Diligence. “At a time when interest rates are tempering home buying activity, these products bring new life to the mortgage market.”
Increasing lender & investor interest
As HEA and HEI offerings gain traction among homeowners, lenders and investors are starting to take note. Financial services company Unlock was the first to offer these solutions, with Home Tap recently following suit. Similarly, the investment community is eager to benefit from the rise of HEAs and HEIs, with Fortress beginning to buy these loans—likely opening the door for a rush of investment banks pursuing these offerings.
“To investors, HEAs and HEIs are seen as a maturation of the reverse mortgage product,” says Steve Warjanka, Maxwell’s Head of Business Development, Diligence. “As the investment community becomes more and more comfortable with these products and how they perform, we’ll see them increasingly leveraged as a way to rebuild lost volume.”
With HEAs and HEIs becoming prevalent and mainstream, more of the mortgage ecosystem is facilitating these products. Maxwell Diligence, for instance, is the first QC/due diligence firm to review HEA and HEI offerings.
“In a tough market, HEAs and HEIs are a win for the lenders that offer them, investors that buy them, and homeowners that leverage them,” says Jim. “Here at Maxwell, we’re proud to facilitate reviews related to these innovative new products, and we’re excited to see how they continue to grow in popularity during 2024 and beyond.”
Want to learn how Maxwell Diligence can help you benefit from the rise of HEA and HEI products? Click here to set up a call with our team.
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