HEI Market Overview

Context for understanding the asset class backing $USH

What Are Home Equity Investments?

Home Equity Investments (HEIs) allow homeowners to access their home equity without taking on debt. Instead of monthly payments, homeowners share a portion of their home's future value with investors. The market began in the early 2000s and has grown to approximately $5 billion in annual originations across 30+ states.

For homeowners, HEIs solve a specific problem: accessing equity without monthly payment obligations. This appeals particularly to retirees, self-employed individuals, and others with substantial equity but limited monthly cash flow.

Market Size and Growth

The U.S. residential real estate market represents $47 trillion in total value, with homeowners holding approximately $35 trillion in equity. Within this massive pool:

• 86 million homeowners have tappable equity

• 32 million have over $100,000 available

• 4.6 million have over $500,000 available

Current HEI originations of $5 billion annually represent just 0.014% of total home equity. The primary growth constraint is capital availability rather than homeowner demand. When originators have predictable capital sources, they can scale operations to meet demand.

How the Market Functions

The HEI ecosystem involves several key participants:

• Originators source homeowners, underwrite investments, and fund HEIs. Over a dozen active programs operate today, each with established processes for evaluating properties and structuring investments.

• Servicers handle ongoing monitoring, ensuring homeowners maintain insurance, pay property taxes, and keep properties in good condition. This infrastructure has matured significantly since the market's early days.

• Institutional Buyers purchase HEI portfolios through direct sales or securitizations. This secondary market provides liquidity and enables originators to recycle capital.

Performance Patterns

HEIs typically settle when homeowners refinance or sell their properties. General market characteristics include:

• Settlement timeframes ranging from 1-30 years, averaging 4.5 years

• Most settlements occur through refinancing or home sales

• The 2x equity multiplier structure provides attractive investor returns even in flat or declining markets

• Contracts include caps (21.93% APY) to protect homeowners

These patterns have remained consistent across different economic cycles, including the 2008 financial crisis, the pandemic boom, and recent high interest rate environments. Learn more about HEI mechanics and how they generate returns.

Secondary Market Liquidity

The ability to sell HEI portfolios before natural settlement provides crucial flexibility. Multiple channels exist:

• Rated Securitizations: Since October 2023, rating agencies have evaluated HEI pools, enabling bond issuance backed by HEI portfolios. This creates standardized pricing and broad institutional demand.

• Direct Portfolio Sales: Institutional buyers regularly purchase HEI portfolios based on geographic distribution, weighted average life, and credit characteristics.

This liquidity infrastructure means HEI holders aren't forced to wait years for individual contract settlements. Portfolio sales can accelerate returns and free capital for new investments.

Regulatory Framework

HEIs are currently offered in 29 states, eight of which have established specific licensing requirements for HEI origination. These frameworks treat HEIs similarly to mortgage products, requiring appropriate consumer protections and operational standards. Rather than hindering growth, clear regulations have encouraged institutional participation by reducing uncertainty.

The Consumer Financial Protection Bureau (CFPB) monitors the market but hasn't identified systemic issues requiring federal intervention. Standard contract features like return caps and homeowner protections have evolved through market practice and regulatory guidance.

Why This Infrastructure Matters for Manifest

The established HEI market provides several advantages:

• Proven Operations: Origination partners handle the complex work of sourcing, underwriting, and servicing HEIs through tested processes refined over 15+ years.

• Liquidity Options: If Manifest needs to raise capital quickly, established buyers exist for HEI portfolios. This provides an emergency liquidity valve beyond normal token redemptions.

• Risk Management: Historical performance data across multiple cycles enables accurate portfolio modeling and risk assessment.

• Scale Potential: With only 0.014% of home equity currently accessed through HEIs, the market can support significant growth without saturation.

• Institutional Standards: Rated securitizations and institutional buyers validate HEIs as a legitimate asset class, not an experimental financial product.