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Real estate securitization marks ‘the beginning of a new asset class,’ Point CEO says

Point CEO and Founder Eddie Lim joins Yahoo Finance Live to discuss investing in the home equity market.

Video Transcript

ADAM SHAPIRO: So we've all watched the price of a home just about anywhere in the United States skyrocket over the last two years. So what if we were to say, you can not only make money if you own the home, the equity involved in it, but if you're the neighbor and you want to make money on your neighbor's house, there's a way to invest now in the equity of your neighbor's house.

Let's talk about all of this with the unlocking finances, what we'll call final frontier. Let's bring in Eddie Lim. He is Point CEO and founder. And the platform-- did I get it-- do I get this correctly? You-- if I've got, let's say, $100,000 in equity in my residence, I can now bring in-- use that-- well, how does it work? I can bring in outside investors to join in the game?

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EDDIE LIM: Yeah, Adam, great to see you again, and Emily, nice to meet you. Yeah, that's absolutely right. We're making investments and homes today. On average, that's a lump sum of $100,000, and now, in many cases, up to $500,000. And because it's an investment, that's what's really compelling here for our homeowners, is there's no monthly payment for up to 30 years. And given everything that's going on right now with stock market volatility, affordability and housing, impending rate hikes, that's a great, very, very compelling feature.

EMILY MCCORMICK: So I'm wondering, given the way that your business model is structured, are there situations where the value of the home depreciates since a homeowner actually partners with you, and the amount that is paid back to Point is then actually less than what you paid to the homeowner? And if so, is that very common?

EDDIE LIM: It has happened a few times. That's a great question. With the last few years, we've seen unprecedented home price appreciation. In those scenarios where that's happened, it's a really interesting kind of alignment because, you know, it's a lose-lose for everybody, right? If the value for the investor has gone down, and so the homeowner pays us back or pays the investor back less than they actually received upfront, it's actually not good for the homeowner either because that means their home's gone down in value. So everyone is aligned here to really maximize the property health and the value of the home.

ADAM SHAPIRO: The part, if I've got it right, though, that intrigued me about this is, OK, the homeowner can do well here. But then I'm the neighbor. I've got no skin in this game. And yet, I can do well through what you're securitizing, correct?

EDDIE LIM: That's right, yeah, and we actually did our very first securitization just at the end of last year. And no, you've absolutely nailed it, right? Investors can also get the diversification benefits and alignment benefits that homeowners get here by being able to take money out of their home and put it into home improvement, put it into an investment property, or just to pay off some of that expensive credit card debt.

EMILY MCCORMICK: So for those who actually participate in this securitization, as Adam was talking about, if you're the neighbor and wants to invest in this as well, how do you foresee this being a part of a portfolio? Is this something where you could invest in a number of different properties and have a number of pieces of home equity? Or how do you see that working from the investor-- the individual investor standpoint?

EDDIE LIM: Investors definitely think about this from a broader portfolio and diversification perspective that you absolutely nailed that. So, you know, what's really great about this is with the securitization, it's really an inflection point for Point in the entire industry. It's really kind of the beginning of a new asset class for investors. And so with broader market acceptance and more ways to get access to the investments and more liquidity, you can now see a path to not just billions of dollars, but really, hundreds of billions of dollars being deployed into this asset class over the coming decade.

And the great thing about this is, it's actually the homeowners who ultimately stand to benefit the most, right? As the markets become more efficient, as you know, the cost of the homeowners will come down. And we're already starting to see that just a few months after this first securitization.

ADAM SHAPIRO: So if I, again, because I love the idea, but as an investor, not the homeowner, but the investor, I have two paths to liquidity here, is I could sell whatever I've purchased in the investment, or when that house or block of these houses get sold, there's a payout to the maturity of the security, correct?

EDDIE LIM: That's right. And in fact, many homeowners pay us back through refinances as well. So refinances, selling their home, but yes, to your point also, the underlying security also has regular payments on it.

EMILY MCCORMICK: How does your business benefit or perhaps not benefit and is impacted by a rising interest rate environment? Is that something you're keeping an eye on and that investors should be thinking about as well this year?

EDDIE LIM: Absolutely. For us, Point stands to benefit significantly from rate hikes. And it's for the simple reason that as new refinances and HELOCs become more expensive, our no monthly payment product becomes even more compelling for homeowners.

ADAM SHAPIRO: Again, loving the idea, but don't you-- I realize nobody's predicting a retraction in home values. But that's where people get burned, is when nobody's predicting that. Wouldn't-- whether-- those who are investing in the securitized product, if there were a downturn in the housing market, wouldn't there be a potential loss for them?

EDDIE LIM: Yeah, in terms of broader housing market dynamics, we're-- and where I think we're aligned with a lot of other economists like Freddie Mac out there-- they just published a report last week. They're projecting 6.2% in home price appreciation this year.

But it makes sense in that there's still very, very limited housing supply, you know, barely a month of supply out there. There's no new significant supply expected to come onto the market. Homebuyers, prospective homebuyers have had increasing wages. And the cost of build and the cost for home improvements are still very, very expensive. And so a lot of these factors more than offset the potential of market forces like rate increases.

ADAM SHAPIRO: Eddie Lim, all the best to you once again. I'd be the neighbor, by the way, if I was investing in the neighbor's house. I'm the guy next door who yells, get off my lawn. But Eddie Lim is Point CEO and founder. All the best to--