Digital lenders are more frequently getting accused of morphing into the same type of institutions they set out to displace. What’s the difference whether you charge usurious rates for a short term loan via a website or from behind bulletproof glass?
One company trying to make a difference in digital lending is Point. The Palo Alto-based lender wants to put borrowers and lenders on more even turf by better aligning incentives between them. With Point, homeowners can tap into their home’s equity without taking on more debt, without monthly payments, and without a fixed interest rate.
“Point is fundamentally transforming the home equity financing landscape,” said Eddie Lim, co-founder and CEO. “This is a truly revolutionary product that aligns the investors and homeowners in a way we haven’t seen before. There’s $18 trillion of U.S. residential real estate equity wealth that is locked up.”
Point allows homeowners to sell a percentage of their home to investors. Borrowers pay back their loans plus some of the upside appreciation in the property when they sell their homes or, if they decide to stay put, repay their lump sum. As a marketplace, Point gives investors, like Airbnb CFO Laurence Tosi, who’s also an angel investor in the firm, the ability to buy fractional interests in owner-occupied residential real estate. “Point offers above market, risk adjusted returns from a diverse and stable set of assets,” said Tosi, who was also the former CFO at Blackstone.
Point’s data science challenge is that it acts as both a lender and investor, so the online lender needs to assess risk on homeowners and their homes. That means the firm sucks in lots of homeowner data, like FICO scores and debt ratios, as well as data on property risk, like foreclosure rates and tax payments. “We’ve spent the past year building our pricing engine,” said Lim. “In a way, we created a FICO score on a property.”
The company’s positioning as a co-owner on a property suggests that it’s better aligned with successful outcomes with its customers. For example, Lim said the company digests 12 months of its borrowers’ bank statements, so it knows if a particular customer subscribes to a credit service or if he’s paying more for Comcast than his neighbors. Point can make personal finance recommendations to assist borrowers’ personal finance management.
The company, which counts Andreesen Horowitz and Citi ex-CEO Vikram Pandit as investors, has created what it feels is a more borrower-friendly consumer finance product. The company announced a $8.4 million investment round today, bringing total fundraising to $15.4 million.
Point’s funding comes at a propitious time. 75 percent of Americans are concerned about losing housing, according to a new survey by the NHP Foundation. When asked how concerned Americans are that they or a friend or relative could lose housing, 30% consider themselves “very concerned”, 27% are “concerned” and another 19% are “somewhat concerned.” Eighty-three percent of respondents are concerned about housing costs in America overall.
Primary residences are a significant store of family wealth in the U.S. and for the most part, that wealth is inaccessible. Debt products like HELOCs and reverse mortgages litter the financial landscape but those are debt products, compounding the financial burden carried by Americans who, as a whole, are decreasing their home ownership. It’s here that Point has its eyes on an even bigger prize.
In addition to providing liquidity for existing homeowners, Point wants to help millennials buy their first homes, too. The product roadmap includes plans for borrowers to be able to take their lump sums and invest them fractionally in other homes around the country. Homeownership is the lowest its been in decades and Lim wants to get young workers on the property ladder for the first time.
“We want homeowners to think about their homes as wealth diversification, not just the single biggest asset they own,” he remarked. “Point unlocks that wealth from homes and can be used to build a portfolio of homes in other markets. We want to make residential real estate a more efficient asset class.”