Its uniqueness lies in the shared appreciation feature tied to home values
In a development seemingly emblematic of times marked by market volatility, non-agency lender Newfi Lending recently unveiled a second-lien product enabling homeowners to access housing wealth.
Consumers are increasingly exploring ways of accessing cash in unconventional ways given higher interest rates. Newfi’s product, EquityChoice, accommodates that need.
Pat Doyle (pictured), president of Newfi Investment Group and co-creator of EquityChoice, sees the product as an alternative to a HELOC. “As interest rates rise and fall, we will adjust our fixed interest rate to be at a very significant discount to the alternatives, and in return we’ll share the appreciation of the house with the borrower,” he told Mortgage Professional America during a telephone interview. “But those amounts are kept based upon federal and state regulatory issues that apply to all mortgage.”
Product has been long in the making
While the product seems to have been rolled out in response to rising rates, Doyle said it’s been in the works for a while. “We didn’t do it because interest rates rose so much,” he said. “We were planning to do it irrespective. We’ve actually created an entirely new alternative, a new option, for the market and borrowers.”
The new product emerges at a time of record levels of housing wealth – some $28 trillion in equity – tempered by higher rates. Signs have pointed to a drop in rates this year, but Doyle said he doesn’t see this as having a negative impact on his company’s newly launched product.
“We never should have had 3% mortgage rates, 2.5% mortgage rates, or 2% mortgage rates,” he said. “The suppression of interest rates led to an awful lot of inflation. This is my opinion: Mortgage rates can fall, but we shouldn’t see those loans again.”
EquityChoice benefits homeowners by allowing access to their home equity at a below-market, fixed interest rate. Yet the product was also designed to benefit investors – including what Doyle calls “joint venture partners” – in that it is REMIC-eligible. A REMIC – or a real estate mortgage investment conduit – is a special purpose vehicle used to pool mortgage loans and issue mortgage-backed securities.
The first mortgage product to emerge since 1991
In those respects, Doyle suggested, EquityChoice is something of a groundbreaking product. “It’s not an exaggeration to say it’s the first new mortgage product since 1991,” he asserted. “I’ve been challenged on that a couple of times, but the two law firms we worked with in developing the product made that statement to me. The last new mortgage product was the index ARM in 1991,” he asserted. “Now we have a product that has a shared appreciation feature.”
Given its complexities, EquityChoice wasn’t launched overnight: “It took a year to create this product in the proper way so that the value-add proposition for the borrower would fit within the mortgage industry, the mortgage construct,” Doyle explained.
The imitation game is sure to come
While the product is proprietary, Doyle said he expects other industry players to come up with imitations. “We’re the only one in the market with this product,” he said. “Anyone who wants to participate in it – whether they’re a consumer doing it directly or a joint venture partner who wants to work with us – Newfi is it. If we’re successful, everyone will copy it. That’s the nature of the business.”
A full launch of the product has yet to take place. “We did a soft launch the week before Christmas,” Doyle said. “We’re doing a full launch soon. We’re pretty excited. We’ve seen some metrics we like.”
He used a compelling hypothetical to tout the product: “Equity Choice is a very interesting product for certain people to use,” Doyle said. “If you want to buy a second home, and you have $400,000 in assets to swap – let’s say you own stocks and bonds and you live in California - do you want to sell your stocks and bonds and pay 33% in capital gains? Or do you want to use EquityChoice? And unlike a closed-end second and unlike a HELOC, with EquityChoice, your free cash flow next month is exactly the same. This product is a great alternative for certain people.”
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