Hometap raised $245 million in commitments for its third institutional investment fund six weeks after adding $60 million in working capital.
Bain Capital and Group 1001's Delaware Life Insurance Co. were investors in this latest round of funding. Neither participated in the previous institutional funds, but Bain also participated in the December venture capital round.
"We are also excited to build an attractive asset class that offers both diversification and inflation hedging benefits for institutional investors," Hometap CEO Jeffrey Glass said in a press release.
Hometap is positioning itself as an alternative for homeowners to access funds from their property rather than taking out a loan. It offers cash based on the home's current equity in exchange for a share of its future value. Participants can complete the transaction within 10 years.
Competitors marketing as alternative home credit lines include EquiFi, Noah, and Unison.
In the early days of the pandemic, both traditional home equity lenders and some of these alternative firms went out of business. But things soon turned around and real estate values have soared to record levels over the past two years, buoyed by inventory shortages. The conditions forecast for the coming year should also benefit this type of product.
"Although the rate of home inflation will decrease from 2021 to 2022, prices are still increasing and we think they're somewhere in the 7% to 8% range," said Doug Duncan, Fannie Mae's chief economist, in an interview with National Mortgage News . "So if interest rates rise, albeit at very modest levels, if house prices rise above the pace of inflation, that will exceed the pace of income growth."
Although Duncan spoke about the impact on buying activity, sentiment may also apply to the need for consumers to tap into home value through cash payout refinancing or a home equity line of credit.
"With a growing number of homeowners looking for creative ways to access their home equity, Hometap offers an attractive, debt-free solution that we're proud to support," said Justin Ostroff, senior managing director of G1001 Innovation Group. "This is a compelling new asset class that fits within Group 1001's mission to provide useful and intuitive financial products that are accessible to everyone, and we recognize the significant opportunity for Hometap to further institutionalize this market."
According to Black Knight, American homeowners had $9.4 trillion in vulnerable equity at the end of the third quarter of 2021.
While mortgage borrowers pulled out equity at the highest rate in nearly 14 years in the third quarter, that equated to more than $70 billion. That was less than a third of the rate people were taking cash out of their homes at the height of the boom in 2005.