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I'm seeing a lot of commentary here that doesn't seem to reflect what this is: preferred equity for infrastructure, sometimes called mezz (mezzanine), applied t

I'm seeing a lot of commentary here that doesn't seem to reflect what this is: preferred equity for infrastructure, sometimes called mezz (mezzanine), applied to the residential real estate market. I think this is super interesting! This type of financing is really common in larger real estate & project financing deals: one speaks of the "capital stack", which can include senior debt, junior debt, preferred equity, and common equity. I think that the reason this hasn't been done before is because of the complications of finding, diligencing and funding individual homeowners. I definitely agree with the OP that this will be an attractive investment for institutional investors, but getting dealflow from the mortgage industry will be extremely capital intensive... I would expect both a lot of direct retail marketing expenses, as well as pretty rich commissions to real estate agent networks and mortgage brokers to kick home buyers their way. Really cool idea though!! As other commenters have mentioned, this can only exacerbate any housing bubble, which is true but kind of beside the point. Yes, any reduction in cost of capital will eventually inflate asset prices, but is that a reason to stop offering mortgages, car loans, etc?

eganist 10y ago
> Yes, any reduction in cost of capital will eventually inflate asset prices, but is that a reason to stop offering mortgages, car loans, etc? Dear god, definitely yes in the case of Point. Are we trying to price out a massive population of disadvantaged people? Mortgages made homes attainable, but there's a reason we enforce minimum down payments etc.: aside from mitigating risks to lenders, it's also to mitigate price inflation. This is an entirely new product designed to help people with the capability to invest to do so on the backs of those who don't. If we're readily acknowledging the potential, ney, inevitability of price inflation for these assets, we're also acknowledging that there is absolutely zero benefit for people who might consider using Point to aid in lowering their upfront homebuying costs. The net result of this is that not only do disadvantaged homebuyers pay as much as they would pay before Point but for less home, they substantially lose out on upside as a result. All of this is an inevitability if the model proposed by Point catches on. This has exactly zero long-term upside for tons of people who don't make substantial discretionary income.
- propter_hoc 10y ago
  The distinction you draw is flawed. The difference between equity and debt financing for any investment - whether it's buying a car, a house, or starting a startup - is really a qualitative one, and neither good nor bad. Residential mortgages made houses affordable, but they also directly led to the historic inflation in housing prices that has happened over the last half-century. The vast quantities of capital that were unlocked into the residential mortgage market by mortgage-backed securities had exactly the same dualistic effect: they made it easier for middle- and low-income families to buy homes, and eventually inflated the market to dangerous degrees. Providing senior equity, or junior debt, to finance these transactions will do exactly the same thing. It will make it easier in the short term to buy a house. It will mean that you can finance your house purchase without locking yourself into excessively high monthly payments. And, if successful, it will eventually mean that so many more people can afford houses that the prices will rise in the future. This is just like how a judicious combination of venture capital and venture debt helps you finance your startup for a minimum of dilution, without excessively high monthly debt payments, but the availability of capital means that rent in SF is inflated. Yes, Point and its financiers will get rich on this, as did the first mortgage-backed securities dealers and the institutional investors that backed them. But so did the people who bought houses in the 90s with suddenly flush access to mortgage financing.
  - eganist 10y ago
    You say my position is flawed, but I don't exactly see how your explanation differs from my understanding. As far as I can tell, we both see the same outcome, whereas you don't see how the loss of upside to disadvantaged (read: the vast majority of) buyers shifts wealth upstream while endangering the economy in the event of a downturn when homeowners will find themselves unable to fall back on appreciated equity in their homes.

eganist 10y ago

> Yes, any reduction in cost of capital will eventually inflate asset prices, but is that a reason to stop offering mortgages, car loans, etc? Dear god, definitely yes in the case of Point. Are we trying to price out a massive population of disadvantaged people? Mortgages made homes attainable, but there's a reason we enforce minimum down payments etc.: aside from mitigating risks to lenders, it's also to mitigate price inflation. This is an entirely new product designed to help people with the capability to invest to do so on the backs of those who don't. If we're readily acknowledging the potential, ney, inevitability of price inflation for these assets, we're also acknowledging that there is absolutely zero benefit for people who might consider using Point to aid in lowering their upfront homebuying costs. The net result of this is that not only do disadvantaged homebuyers pay as much as they would pay before Point but for less home, they substantially lose out on upside as a result. All of this is an inevitability if the model proposed by Point catches on. This has exactly zero long-term upside for tons of people who don't make substantial discretionary income.

propter_hoc 10y ago
The distinction you draw is flawed. The difference between equity and debt financing for any investment - whether it's buying a car, a house, or starting a startup - is really a qualitative one, and neither good nor bad. Residential mortgages made houses affordable, but they also directly led to the historic inflation in housing prices that has happened over the last half-century. The vast quantities of capital that were unlocked into the residential mortgage market by mortgage-backed securities had exactly the same dualistic effect: they made it easier for middle- and low-income families to buy homes, and eventually inflated the market to dangerous degrees. Providing senior equity, or junior debt, to finance these transactions will do exactly the same thing. It will make it easier in the short term to buy a house. It will mean that you can finance your house purchase without locking yourself into excessively high monthly payments. And, if successful, it will eventually mean that so many more people can afford houses that the prices will rise in the future. This is just like how a judicious combination of venture capital and venture debt helps you finance your startup for a minimum of dilution, without excessively high monthly debt payments, but the availability of capital means that rent in SF is inflated. Yes, Point and its financiers will get rich on this, as did the first mortgage-backed securities dealers and the institutional investors that backed them. But so did the people who bought houses in the 90s with suddenly flush access to mortgage financing.
- eganist 10y ago
  You say my position is flawed, but I don't exactly see how your explanation differs from my understanding. As far as I can tell, we both see the same outcome, whereas you don't see how the loss of upside to disadvantaged (read: the vast majority of) buyers shifts wealth upstream while endangering the economy in the event of a downturn when homeowners will find themselves unable to fall back on appreciated equity in their homes.