Solving the HEI origination securitization challenge  

This seems like it would be a win/win situation, but there’s currently a significant disconnect between the high demand from homeowners and the actual supply of capital available to fund HEIs. HEI originators are seeking stable, evergreen sources of capital to fund their operations. Could innovation and new regulations in cryptocurrency give these originators the stability they need? 

How HEI origination works  

HEI originators operate similarly to mortgage origination shops, making money from a spread. They originate these instruments, often at a cost of a couple thousand dollars, funding them with borrowed capital. Typically, originators borrow from external sources, earning a spread—generally around 4%—and repeating the process. It’s essentially a volume-driven game, combining one-time revenue from

with ongoing servicing fees.  

But there’s currently a significant imbalance between the high demand for HEIs and the relatively few originators who are able to provide loans, with HEI originators reporting customer waitlists totaling hundreds of millions of dollars. This backlog arises primarily from two factors. First, traditional debt-based alternatives such as Home Equity Lines of Credit (HELOCs), home equity loans, and cash-out refinances can increase homeowners’ monthly mortgage payments — and people don’t want to pay a higher mortgage to access their home equity. Secondly, overly strict credit requirements and debt-to-income (DTI) ratios exclude many homeowners, perhaps unfairly so. This leaves them with this enormous asset in their home equity, but they have no way of accessing it short of selling their home, which is simply something that many people don’t want to do.  

There’s this tremendous demand for HEIs. There’s a supply of billions of dollars in home equity that wants to be tapped. But there’s very little capital that’s eligible to do so. While residential mortgage-backed securities have a robust and well-established institutional investor network, the first HEI securitizations only occurred in October of 2024. HEI securitization is really in its nascent stage of institutional involvement. Therefore, these originators faced difficulty obtaining stable funding, either relying on warehouse lines of credit—which institutions are reluctant to extend due to uncertainty about future securitizations—or executing forward flow agreements with buyers such as endowments, sovereign wealth funds, and pension funds.  

These forward flow agreements often demand long-term commitments, given the uncertain maturity of HEIs, which typically range from 10 to 30 years but terminate when the homeowner sells or refinances. Because there’s no secondary market for HEIs, investors must be comfortable holding onto them until maturity—whenever that might be. This makes the investor sales cycle lengthy and challenging. Additionally, originators frequently enforce exclusivity agreements due to the extensive resources invested in educating prospective buyers.  

This landscape has created a significant capital constraint for HEI originators.  

A new source of capital for funding HEIs  

Blockchain and stablecoin cryptocurrency could be the key to unlocking the significant quantities of capital that are currently held back by HEI shortages. Major originators in the HEI space have begun backing the use of blockchain technology as a legitimate source of capital for private equity real estate. This approach gives HEI originators two distinct advantages. 

First, it represents a fundamentally different and evergreen capital source. This is in stark contrast to the current situation, where capital allocators are making decisions between competing lending products. Depending on prevailing interest rates and other investment opportunities that are out there, HEI might be more or less favorable. 

The second big problem this solves is that current capital is often delivered in fixed, temporary “slugs.” These slugs force originators to ramp operations up and down, creating inefficiencies in staffing and management. This new model alleviates the operational strain from forward flow agreements and, by having a stable capital flow, these disruptions can be avoided, and hiring/firing cycles can be prevented.  

The value in tokenized real estate  

Bringing private equity real estate onchain creates a tokenized asset backed by physical real estate, like the way stablecoins are pegged to the supply of the U.S. Treasury. This innovation gives global real estate investors access to predictable yield, high quality collateral, and secondary market liquidity onchain. 

Exploratory Web3 teams at all the major finance companies—Palo Alto Networks, Goldman Sachs, Bayview Asset Management, JP Morgan, and more—are finding innovative ways to use these new resources. Some are building crypto products internally, while others are starting proof-of-concept work on public blockchains. There’s sure to be some very interesting new financial products appearing in the very near future.  

For example, the new token $USH is backed by HEIs, providing seamless access to institutional-grade real estate with the liquidity and efficiency of stablecoins. This gives private equity-style access to US residential, owner-occupied property to anyone, anywhere, while providing the origination funding to allow these homeowners to tap into home equity via HEIs. 

As regulatory clarity improves, substantial institutional capital from traditional financial institutions — currently hesitant due to prior uncertainty — is expected to flow into HEI securitization via blockchain and stablecoin technologies. Ultimately, this could drive increased efficiency, lower borrowing costs, and enhanced margins in the HEI market, potentially benefiting both institutions and consumers alike. 

By Nathaniel Sokoll-Ward is the  CEO of Manifest.

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: [email protected].