Morningstar DBRS created rating criteria for securitizations of home equity investments in mid-2023. Since then, issuance has blossomed, and the sky’s the limit, according to industry participants.

ABS backed by home equity investments are offering unlevered returns in the low double digits. The first rated HEI ABS was issued in October and industry players are anticipating exponential growth.

Home equity investments allow homeowners to receive cash in exchange for a share in home price appreciation. Activity in the sector has grown to the extent that there was a conference dedicated to HEIs last week.

HEI business leaders discussed their unique approaches to home equity contracts during a recent webinar hosted by the Information Management Network.

Non-agency securitization involving home equity increased by 39.3% in the second quarter even as some big players pulled back. Issuers that weren’t active in the first quarter helped fill the void. (Includes two data tables.)

Four rated deals have been issued in recent months. Morningstar established rating criteria for HEI securitizations late last year.

The $141 million deal was oversubscribed with interest from both new and repeat investors.

Securitization of home equity loans increased again in the first quarter, driven by closed-end second liens. Issuance is growing exponentially, helped by nonbanks and investor demand. (Includes two data tables.)

Steadworth’s shared-equity agreement offering includes downpayment assistance for homebuyers.

Home equity investments have seen considerable homeowner interest due to high interest rates, but industry participants said more investor support is needed to meet homeowner demand.