News from premier shared equity innovators EquiFi and global credit/asset management company Palisades Group partnering has prompted RealtyBiz’s tighter focus. The latter funding the EquiFi Funding Instrument (EFI™), is of special import given the skyrocketing pricing boom, and especially given all those potential buyers who are affected.
A debt free financing solution with no interest and no monthly payments seems like a perfect solution for so many priced out of homeownership. To get the lowdown on EFI™ and the potential to come, I interviewed EquiFi’s founder and CEO, David Shapiro. Here is that Q&A, followed by my takeaway.
RealtyBizNews: EFI seems like a truly innovative "win-win" for homeowners and investors. Can you help us with a scenario that illustrates how the instrument works in practice?
David Shapiro: I think that before answering this question some context is required. The EquiFi Funding Instrument (EFI™) is specifically designed to provide a solution that fits the needs of both consumer and an investor with neither party feeling disadvantaged. The home is the most the precious asset we can own and one that can deliver joy and financial security for life. It’s also a relatively new financing product for both the consumer and the investor.
It’s rare to find a product that, out of the box, acknowledges that there doesn’t have to be an inequity between the two just because it’s new. It’s a fact that over time most homes will be worth more than they were when purchased. If we look at historic national home price appreciation over rolling 8-year periods home prices have only dropped in three 8-year periods. Those years were during the house crisis starting in 2007 and most recovered and exceeded their pre-crisis values within five years.
RealtyBizNews: Will this kind of innovative funding/finance help people who seem priced-out of the market because of the bubble?
David Shapiro: There is no question that there is competition in the residential housing market. Homebuyers are not only competing with other homebuyers, but they are also increasingly competing with investors who seek to benefit from home price appreciation by converting homes into rental properties. Our EFI™ is designed to reduce the amount of debt used in purchasing a home so the homebuyer has a lower mortgage payment (and may be able to avoid needing mortgage insurance). That leaves more discretionary income to save outside the home. Having your wealth over concentrated in home equity is just as bad as having all your investments in one stock.
While EquiFi can certainly help homebuyers in home financing, resolving the growing problem of home ownership competing with institutional investors is a much more difficult challenge. We do our best by informing these investors that they can have their cake and eat it too by embracing shared equity products like the EFI™. By converting a home into a rental house, investors have the all the costs of maintenance, vacancies and collection, tenant treatment of the house. Doing the right thing doesn’t have to be a compromise and shared equity is a viable alternative.
RealtyBizNews: Can you tell our readers how EFI can help with initial home financing?
David Shapiro: I should start by saying that for the near term we are focused on the use of our product to help existing homeowners access their home equity. Our primary strategy right now is to promote the home as asset in retirement. That said, we are all about consumers buying their ideal home. In that context we can co-invest with a homebuyer in any number of ways. Our product flexibility allows us to approach home financing outside of outdated construct where the buyer puts down the full down payment and takes out a mortgage that is 80%, 90%, or 95% of the home.
RealtyBizNews: Please, your views on where this type of innovative financing will evolve.
David Shapiro: Introducing any new product category is challenging; introducing new financial products is much more difficult. The sheer magnitude of the market and the consumer need for alternative home financing choices clearly works in favor of shared equity. That said, resistance forms around the general fear of disintermediation in an industry not known for innovation and the potential regulatory skepticism of the private sector in delivering products that are fair, balanced, and sold with integrity.
The fear of disintermediation is being overcome with Wall Street rebounding following the pandemic and aided by a very strong boost in home price appreciation. As a Public Benefit Corporation, EquiFi is taking the lead to embrace regulators as part of our ecosystem. Our product is loaded with consumer protection features including our commitment to not having a term on our contract that would require a homeowner to close out the contract just because the clock reached a date on a calendar.
Today’s economic situation, the current housing boom, and myriad other factors have made the dream of homeownership more like a fantasy for many people. From a market standpoint, housing demand has created a huge vacuum that creative financing and equity innovation can fill. EquiFi, and a handful of other players have focused on what amounts to a simple solution. They have created an alternative path for people to engage in traditional wealth creation through property (equity) ownership. EquiFi scoring funding from Palisades Group is good news for Shapiro, but better news for potential homeowners whose fantasy may now become their dream realized. I love innovation that helps people.