This company is funneling tons of fixed and reverse loans to Wall Street

  • The homecoming business is booming and Wall Street companies want a piece.
  • AlphaFlow buys fix-and-flip loans in bulk and bundles them into portfolios for investors.
  • The company is attracting investment from venture capitalists and REITs as its acquisitions expand.

House flipping activity is booming and big Wall Street investors want a piece of the action.

Meanwhile, private lenders need a steady flow of capital to continue providing pinball machines with short-term loans, which they use to fund home purchases and renovations.

In the middle is AlphaFlow, a San Francisco company that buys fixed and reversible loans from private lenders and bundles them into portfolios for investors. The company provides software to lenders that allows them to manage their loans and route them to AlphaFlow, while simultaneously giving institutional investors the ability to take advantage of a growing debt pipeline with high single-digit interest rates.

On Tuesday, the company will announce a minority equity investment in New York Mortgage Trust Inc., a real estate investment trust that has made home improvement loans the fastest growing segment of its $3.6 billion investment portfolio. dollars by the end of 2021.

This is the latest sign that the home flipping market is experiencing a resurgence in the United States after volumes plummeted at the start of the pandemic. In the third quarter of 2021, flips accounted for 5.7% of all home sales, or one in 18 transactions, up for the second consecutive quarter after a year of decline, according to a report by Atom Data Solutions.

Other investors in AlphaFlow’s latest funding round included hedge fund billionaire Steven Cohen’s Point72 Ventures, as well as venture capital firms Rebel Fund and Gaingels. Financial details of the funding round were not disclosed.

This is the second time that Point72 has invested in AlphaFlow. The first investment took place in 2017, when the AlphaFlow concept had yet to be proven at scale, AlphaFlow CEO Ray Sturm told Insider.

“A few years ago it was an idea. It was an experiment,” Sturm said. He estimated that his company is one of the top three players in the residential investment loan market.

Investors covet these types of loans because their terms are short — typically just six to 12 months — which means investors can expect repayments fairly quickly, Sturm said. Additionally, the loans are secured by more equity than is typical in standard residential mortgages, making the loans theoretically less risky, Sturm added.

“That’s good credit going in and out,” Sturm said.

It’s hard to gauge the size of the U.S. home flip market today, but AlphaFlow estimates the dollar volume of flips now stands at around $75 billion a year – up from $56 billion in 2016 – based on past Atom figures and increases in numbers. flips and home prices.

New York Mortgage Trust’s investment in AlphaFlow is the latest evidence that many of Wall Street’s top asset managers are taking this type of lending seriously. These institutional investors need companies like AlphaFlow, Sturm said, because “they have to play big,” rather than hitting lenders one at a time.

Another big Wall Street buyer is MFA Financial, whose lending subsidiary Lima One Capital created $1.6 billion in debt last year, beating estimates of what it would acquire by a third. .

On the other hand, giving private lenders access to broader capital markets allows them to provide speed and reliability to borrowers or small investors, Sturm said. By working with Wall Street, these lenders can obtain capital more cheaply than relying on a wealthy few, which was a common pattern in the past.

Companies that buy loans and pool them to sell them as bonds to investors are feeling the pain as rising interest rates dampen demand for those assets. But AlphaFlow has diversified its capital providers and kept the money flowing, said Noah Martin, president of the company.

By the end of the second quarter, AlphaFlow expects to buy about $250 million in loans per month, about five times more than a year ago, Sturm said.

Last year, AlphaFlow also began buying loans from operators of single-family rental homes. Unlike fix-and-flip loans, these rental loans have longer tenors, usually 30 years. Single-family rentals are one of the hottest asset classes in America today, and Wall Street is “queuing up to basically fund them,” Sturm said.

Today, short-term loans make up about 70% of AlphaFlow’s purchases and rental loans make up the remaining 30%, Sturm said.

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