Americans now have an unprecedented $6 trillion-plus in home equity, spurring the creation of products designed to help homeowners leverage this tremendous source of wealth.
EquiFi, a public benefit corporation, is set to do just that as it prepares to launch a product it hopes will transform the way consumers access their equity.
“EquiFi is focused on helping people achieve their dreams through equity partnerships rather than through taking on more and more debt,” EquiFi Founder and CEO David Shapiro said. “Up until now, the only way people have funded their lives has been through borrowing money, and many find themselves trapped in a debt spiral.”
The solution, Equity Funding Instrument, gives homeowners a new channel to access the liquidity immobilized in their homes. EFI matches consumer needs with investor interest, working as an alternative financing instrument. The product requires no monthly payment and allows consumers to maintain ownership of their homes.
Instead of paying interest each month, the EFI cost to the consumer is based on the home's future value. Consumers can borrow money from an investor who is entitled to a portion of the homes' value when they sell, decide to prepay or pass away.
The California-based company plans to start offering EFI as early as December, distributing through banks, mortgage originators, broker-dealers, financial advisors, and possibly even through corporations that can offer EFI as an employee benefit.
According to the company, EFI is an alternative to reverse mortgages and home equity loan products.
“EquiFi wants to help people create and manage their wealth within their home and outside of it,” Shapiro said. “Our EFI shared equity product has the capacity to break down the ridiculous belief that the only way we can finance a home is through borrowing as much as we can.”
Shapiro said EquiFi has plans to introduce EFI in 16 states, eventually expanding nationwide.
The company recently brought on a new chief investment officer, hiring Fred Matera to advance its capital markets development.
“Our mission to help homeowners and homebuyers requires significant investment capital and Fred will be taking that challenge head on,” Shapiro said.
Matera said he’s excited to work on private-sector solutions that seek to make housing more affordable and more stable.
“Historically, solutions have focused exclusively on the debt side – how do we add leverage or lower the cost of debt?” Matera said. “EquiFi's focus is on the equity component, using the capital markets to optimize the sizing, pricing and risk allocation of the equity in one's home.”
“We all have a stake in the soundness of our financial system and increasing debt-to-income ratios and offering 100% financing ultimately puts our system and our society at risk,” Shapiro said. “With shared equity as an alternative, we no longer are forced to choose between our dreams and our willingness to take on high levels of debt.”