Home Equity Agreements (HEAs) Have Arrived

March 28, 2022

Homeowners using their home equity as a tool to solve financial problems or capture investment opportunities is in the early plays of the first inning. The cycle started in 2019. In fact, it took years for “cash-out” mortgage refinancing to start gaining significant appeal, just before interest rates surged a few months ago.

But just because mortgage rates have soared and the appeal of cash-out mortgages disappeared overnight, does not mean homeowners’ need for housing-related liquidity has also disappeared. Quite the contrary, which is why alternative, non-debt products like HEAs (alternatively referred to as Home Equity Investments or HEIs) are now gaining popularity.

We expect the home equity extraction boom that began in 2019 due to record low interest rates will continue, but using alternative products like HEA’s because:

  • Mortgage rates are way up, and climbing
  • Tens of millions of home owners are locked into low, first-mortgage rates
  • Consumers have near-historic consumer debt levels
  • Workers have negative real wage growth

Since they are not loans, and they have no monthly payments, HEAs appeal strongly to homeowners with burdensome financial obligations, overdue home repairs or costly medical/rehabilitation expenses. Additionally, they appeal to homeowners who want to capitalize on fleeting investment opportunities.

The next phase in the “home equity extraction supercycle” will be lenders and banks “normalizing” home equity withdrawal in the minds of homeowners. This is what we witnessed in previous cycles in which homeowners embraced home equity to solve problems and capture opportunity. In fact, in the last cycle it was called “the home ATM machine”.

But this mindset change doesn’t happen overnight. It’s a process of shaping the messaging, seeing results, and others following until everyone else, almost simultaneously, has that “ah-ha” moment. At that point, when big banks like Wells Fargo start heavily marketing home equity mortgage products on TV commercials again, the narrative will have changed, and homeowners will want their own “home ATM machine”.

In closing, a supercycle of homeowners using their home equity to solve financial problems or capture financial opportunity is in the early innings. Home Equity Lines of Credit (HELOC), second mortgages, and even reverse mortgages will all become very popular. But non-debt HEAs --with no monthly payments -- will stand out as a compelling option to millions of homeowners that don’t want to take on more high-priced debt to tap their “home ATM machine.”

Leap’s purpose-built HEAs are designed to help homeowners in specific ways and are unique in the HEA marketplace.

To learn more about our HEAs, email us here. Find out which HEA is right for you. Although we are powered by advanced technology, our focus is on the human side. We are distinguished by the way we work with underserved homeowners and small business owners, which is in a thoughtful and caring manner.  



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