Mortgage entrepreneur Anthony Hsieh is back with another home finance company.
Hsieh, who started Irvine’s HomeLoanCenter.com and sold it to LendingTree LLC in 2004, now runs Irvine-based Grander Financial Inc.
Grander’s business is a bit of creative finance: The company offers homeowners cash in exchange for a stake,25% to 50%,in the value of their home equity.
Hsieh (pronounced “shay”) calls it an alternative to taking out a reverse mortgage or a home equity loan.
“Instead of borrowing against your equity, you are participating in the appreciation of your equity,” he said.
Grander’s service isn’t a loan, so there are no monthly payments or outstanding balances.
What could give homeowners pause is giving away part of the money they’ve built up in their homes.
The company becomes a lien holder on the house.
Grander makes its money when the homeowner sells the home and appreciation is shared with the company. If the value of a house goes down, the company shares in the loss.
The bet for Grander is that home prices will go up in the long term, as housing prices are predicted to fall for another year or so. Grander’s service is for a minimum of three years, which means homeowners can’t sell their homes before that.
“It’s a clever idea,” said Murray Rudin, who heads the Irvine office of Los Angeles-based private equity firm Riordan, Lewis & Haden. “There are a lot of people who are too squeezed, who need money right now but they don’t want to sell.”
Hsieh raised money from investors to acquire home equity stakes, which are the basis of an investment fund called Grander Financial. The investors own shares in the fund, as does Hsieh.
Grander has a 14,000-square-foot Irvine office and employs about 40 people, many of whom have worked in the mortgage business. Hsieh hopes to grow to about 200 people in six months.
Unlike Hsieh’s mortgage business, Grander is a face-to-face business, he said.
“This is not a complex program, but it’s unconventional,” Hsieh said. “People need the personal interaction.”
The company offers its service, known as My Equity Freedom, in California, Washington, Massachusetts, Florida and Illinois.
Hsieh has a track record of starting and selling companies. His first was Huntington Beach-based LoansDirect.com, an early online lender bought in 2001 by E*Trade Group Inc.
He went on to start Irvine’s HomeLoanCenter.com and stayed with the company after its sale to IAC/ InterActiveCorp.’s online mortgage broker LendingTree until leaving last year.
In the past year or so, Hsieh has indulged in his passions,boating and sport fishing.
Last summer, he bought Crow’s Nest Yachts, a Newport Beach yacht dealer. Crow’s Nest sponsors Hsieh’s professional fishing team, Bad Company.
Hsieh said he started stewing on Grander a year ago. In fishing speak, a grander is a 1,000-pound Marlin.
Grander is eyeing baby boomers who don’t want to sell their homes for smaller ones. They’re also likely to have equity built up.
For older homeowners, My Equity Freedom is an alternative to a reverse mortgage, which allows homeowners to tap their home equity for income in their later years.
My Equity Freedom charges some upfront fees: the cost of an appraisal, about $400 to $600, and about $2,000 to $4,000 in various administrative and document fees.
Grander’s business may raise some eyebrows after last year’s subprime mortgage crisis.
“The clear danger is the opportunity for exploitation of people in trouble who don’t have a good idea of economics and finance,” said Peter Navarro, a professor at the Paul Merage School of Business at the University of California, Irvine.
But the risks could be lower than taking on more debt, according to Rudin.
“There’s not the same risk with selling a piece of equity,” he said.
The homeowner can end the contract by selling the home or by “release of agreement,” where the house is refinanced and the appreciation gain is shared, Hsieh said.
If a home falls in value, the owner can end the agreement with both sides taking losses on their investments.
