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LendingHome has completed its first securitization of its own fix-and-flip loans, broadening its source of funding and giving it some additional flexibility.
The $219 million transaction, which is unrated, is structured with a two-year revolving period during which principal payoffs can be reinvested in newly originated loans. Initially $10 million of proceeds will be set aside to acquire loans after the close of the deal. The revolving structure enables efficient funding, as the loans used to rehab and resell houses generally have terms of 12 months but pay off even faster, in approximately seven months.
Previously, the San Francisco-based company relied on a combination of bulk sales of whole loans to institutional investors and online sales to individual accredited investors to fund its lending. There have been eight prior securitizations of LendingHome loans totaling $200.8 million, but all were sponsored by institutional investors who acquired loans in bulk and then bundled them into collateral for bonds. The most recent deal, sponsored by Nomura Securities International, was issued in 2016, and was backed by a static pool of collateral.
Nomura was also the structuring agent for LendingHome’s new two-year revolving deal, and is co-adviser, along with Barclays Capital, and co-lead manager, along with Sandler O’Neill.
“While we have worked with a number of institutional whole loan partners over the past few years, we are excited to broaden our investor base with the issuance of our first revolver securitization,” Matt Humphrey, co-founder and CEO of LendingHome, said in a statement issued Tuesday. “This securitization means we can lower our cost of capital, diversify our investor base, and provide our borrowers with competitive pricing and service enhancements.”
LendingHome expects to be a repeat issuer and build a brand in the securitization market, funding 25% to 35% of its loans this way, depending on market conditions and demand from whole loan buyers, Michael Bourque, LendingHome’s chief financial officer and chief operating officer, said in an email.
Four tranches of notes were issued in the transaction, $208 million of senior- and mezzanine-class notes and $11 million of subordinate-class, notes that were retained by the sponsor. By comparison, the deal Nomura completed in 2016 consisted of just two tranches of notes.
Another distinction between the two deals is the borrowers. “As we have grown our origination volume over the past two to three years, our focus has primarily shifted to more experienced, professional borrowers, which is the primary difference between our early 2016 origination and where we are today,” Bourque said in the email.
LendingHome defines a flipper, or property investor, as someone who has completed at least one home purchase and resale in a year or less with at least 10% profit, or someone who has purchased and resold at least two homes in 1,000 days or less. Since it started lending in mid-2014, the company has funded more than $3.5 billion in mortgage loans.