Eave, a digital mortgage lending startup backed by Bessemer Venture Partners and Two Sigma Ventures, is looking for investors to help expand the field of eligible home buyers through offerings of low down payment products, said co-founder and CEO Jack McCambridge.
The low down payment product would be part of the planned expansion of Eave that in November began to originate loans outside of Colorado, McCambridge said. It now lends in California and is licensed in seven states.
Eave has two investors that absorb the current production, he said. He declined to name them but said one is a bank with USD 50bn in assets and the other a non-bank aggregator that holds loans on balance sheet. The company has plans to add investors generally in 3Q19, but that could be sooner of if one brought the low down payment product to the table, he said.
Low down payments are one way that Eave plans to expand credit for borrowers in an environment where rising home prices have turned many away. An investor-sponsored program could mean a borrower is sold a first and second mortgage, which together would be cheaper for them than standard agency low down payment programs that require the burden of private mortgage insurance, he said.
The first-lien mortgage would be offered at prevailing mortgage rates, he said. A second-lien rate would start at 6.5%, as of today’s index rate, he said.
Indeed, affordability issues are growing more acute. Fannie Mae’s Home Purchase Sentiment Index resumed its downward trend in December amid a steep drop in the net share of Americans who believe it is a good time to buy a home, according to the GSE. Even as home price growth has slowed, the increases have outpaced incomes, and that has influenced consumer attitudes, Fannie Mae chief economist Doug Duncan said when announcing index results last week.
Eave is expanding into conforming products this month after starting with prime jumbo loans, McCambridge said. In prime jumbo, Eave can win business with an underwriting model geared to better assess complicated borrower financial situations, he said.
For one Denver couple, Eave’s underwriting meant they could purchase a USD 1.5m home, USD 500,000 more house than was approved by their initial bank, he said. That bank had given less credit for their incomes, one of an entrepreneurial financial officer whose wages were only a portion of his compensation and the other of a doctor whose income was set to rise this year, he said.
The anecdote may speak to another segment of potential home buyers that have been targeted by non-bank lenders: the self-employed. Self-employed households earn more than salaried households, but their mortgage use and homeownership rate has been in steeper decline, Laurie Goodman and Karan Kaul of the Urban Institute’s Housing Finance Policy Center wrote in a blog today.
“The mortgage market is not meeting the needs of self-employed workers,” the analysts wrote.
by Al Yoon