Santa Ana-based Equity Repositioning Corp. wants to put your house to work on Wall Street.
The six-month-old company is trying to lure potential clients with cable TV ads to its program, which takes money from clients’ homes and invests it in mutual funds.
“The idea has been around for a while, but no one has mass marketed it before,” said Steve Vanderhoof, chief executive of Equity Repositioning.
The idea is simple. You borrow against your home’s equity at a fixed rate of 6.5% and put the money into mutual funds.
Inside the 10-story Santa Ana building where Vanderhoof’s three companies occupy the top floor, he said he thinks he’s on to something “meteoric.”
His office is energized with reggae music and workers standing at desks answering phones.
The idea could appeal to some homeowners with the housing market’s downturn. Despite some turbulence of late, gains on Wall Street are on track to trump home prices, which are flat to declining in Orange County.
That hasn’t been the case for most of this decade. During the housing boom, cashing out to invest on Wall Street wouldn’t have made sense. The 20% or so gains in OC home prices around 2005 easily outpaced stocks.
So what’s the downside?
For those who make the move, the risk is a potential downturn on Wall Street that’s worse than the decline in home prices so far.
Vanderhoof says the particular mix of mutual funds he recommends is up about 30% this year, enough to make the cost of taking out a loan on a home worth considering.
“For the last 74 years there’s only two years this hasn’t worked,” he said.
The strategy also benefits from the reinvestment of mutual fund dividends. But there also are fees with mutual funds, which run from 1% to 5.75%, he said.
Some of the funds used by Vanderhoof are from American Funds, managed by Los Angeles-based Capital Group Cos.
Since starting the business six months ago, Equity Repositioning has received about 1,200 calls and has about 400 clients in the process of moving their home equity, according to Vanderhoof.
He expects to make about $12,000 from each customer, he said.
Convincing Skeptics
His biggest challenge is trying to convince people that it’s a viable strategy, particularly given all the bad news in the housing market over subprime mortgages and falling home sales.
“We’re taught our whole lives that the way you (buy a home) is to borrow the money and slowly pay it off,” he said. “But we don’t realize we’re doing it at the cost of an asset.”
The strategy isn’t for everyone.
People with less than a 40% ownership stake in their home shouldn’t do it, Vanderhoof said. To keep interest rates down, only those with strong credit should try to refinance.
About $1 million has been invested in the creation of Equity Repositioning, according to Vanderhoof.
The company works with Linear Financial Services Inc., a stock brokerage owned by Vanderhoof that handles the mutual fund investments, as well as Home Loan Consultants, a Newport Beach-based mortgage banking company.
Vanderhoof also owns The Credit Exchange Corp., a Santa Ana-based debt services operation that has been in business for more than six years.
The Credit Exchange has about 200 employees and operates six Web sites that bring in Web surfers looking to fix their credit situations.
People who submit their information through the sites are then referred for a fee to one of four independent lawyers.
The lawyers negotiate better credit terms for the clients, Vanderhoof said.
About 6,000 people visit the sites each week, but that number has been increasing as credit problems among consumers become more widespread.
“There are so many people out there that I can control the throttle,” he said.
The typical client will have about $20,000 in debt, paying about 19% a year in interest, according to Vanderhoof.
Credit Exchange is expected to do about $12 million in revenue for 2007 and $20 million for 2008, according to Vanderhoof.
Customers recently out of debt have been targeted as prime candidates for investing in the stock market, but unfortunately it hasn’t worked out that way, Vanderhoof said.
Vanderhoof’s introduction into finance came in 1989 when he was working as a cook in Las Vegas and responded to an advertisement in the paper for a sales job in precious metal investing.
He sold gold and silver commodities for more than three years, but got out when the bull market they’d waited for never happened.
From there he moved on and got his stockbrokers license to sell investments.
But that ended in 2000 when the market started to turn bad.
“The next place to be seemed to be debt restructuring,” he said.
