Noah/Patch Homes Pitch

Part
01
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Part
01

Unconventional Homeownership Trends

Unconventional mortgages, rent-to-own ownership, and shared-equity ownership are trends around unconventional forms of homeownership in the United States. Below is an overview of the findings.

Unconventional Mortgages

  • The National Association of Home Builders (NAHB) classifies unconventional mortgages as "loans insured by the Federal Housing Administration (FHA), VA-backed loans, cash purchases, and other types of financing such as the Rural Housing Service, Habitat for Humanity, loans from individuals, state or local government mortgage-backed bonds."
  • Unlike conventional mortgages, unconventional mortgages are usually designed to cater to individuals who do not meet conventional income or loan credit requirements. These include commissioned or seasonal earners as well as borrowers with significant assets but insufficient documentable income.
  • Simply put, unconventional mortgages are forms of financing that allow individuals who cannot prove a steady stream of income due to lack of a "well-documented financial history" to provide "alternative methods of verifying cash flow or assets requisite to getting a loan approved."
  • According to the (NAHB), unconventional mortgages constituted "28.6% (compared to 71.4% for conventional financing)" of new-home financing in 2019, much more than in previous years. The Department of Veteran Affairs reported that there was a 14% increase in the quantity of VA-backed loans among active military and Gen Y veterans. The Wall Street Journal reported that unconventional mortgages hit a record high in 2018 since the 2008 financial crisis.

Rent-to-Own Model

  • The rent-to-own model entails committing to rent a property for a "specific period with the option of buying it before the lease runs out." The agreement usually includes a standard lease agreement and an option to purchase the property later on.
  • The buyer pays non-refundable upfront fees referred to as the option money, option fee, or option consideration. This usually ranges from 2.5% to 7% of the buying price and it is what gives the buyer the option to purchase the house in the future.
  • With lease-purchase contracts, the rent is typically higher than the going rate because a "portion of each payment is applied to the eventual purchase price."
  • The rent-to-own trend is being driven by startups Homes which are making waves by addressing and eliminating the biggest barrier to home ownership (down payments) in the United States, at least according to 41% of Americans. Other startups such as ZeroDown and Divvy are purchasing homes on behalf of clients and then renting them to their clients under an arrangement that allows consumers to build up equity for an eventual purchase.

Shared-Equity Models

  • The shared-equity model entails housing co-ops and community land trusts. Housing co-ops and community land trusts (CLTs) are alternative home-ownership models that provide benefits that are not offered by traditional markets such as "long-term housing affordability and the ability for low and moderate-income families to build equity."
  • A housing co-op is an organization of residents living in multi-family units in which each family/household owns a part/share of the building. Shares are "sold at market rates, or below market rates in limited-equity co-ops, where the co-op recoups a percentage of equity earned on every transaction in order to subsidize the next shareholder." In housing co-ops, buyers do not own the house but rather they own shares to the building the same way shareholders own shares to a company.
  • Community land trusts are nonprofit, community-run landholding organizations that sell the units built on the land that they own, usually with the intention of maintaining affordability in perpetuity. In CLTs, households lease homes for up to 99 years as opposed to traditional buying agreements. They are free to sell their homes and receive up to 70% of the appreciation.
  • The growth of shared-equity homes has been driven by the worsening of housing affordability in the United States. Currently, there are about one million housing co-ops in the United States, 50% of which are located in New York. There are almost 300 CLTs in the U.S. owning about 20,000 rental and "15,000 home ownership units."
Part
02
of three
Part
02

Real Estate Technology Trends

Big data, blockchain, and virtual and augmented reality are trends in real estate technology. The requested information on the trends is presented below.

Big Data

  • The dawn of big data apocalypse has seen big data trend infiltrate all industries and sectors, including real estate. Big data refers to a huge amount of data used to give a predictive analysis about consumer behaviors based on history, trends, and patterns. Big data is changing the real estate industry into a well-orchestrated game of information with numerous benefits.
  • Big data is helping real estate industries make accurate appraisals, develop personalized advertising and marketing, improve buying decisions, and detect ideal areas for real estate development. Other benefits include helping in risk mitigation, evaluations, and understanding customers’ needs better.
  • Big data is considered a trend in real estate technology because of the disruptions and transformations it has caused to the industry. It is also becoming increasingly user-friendly and accessible for use in the real estate industry.
  • Zillow is one of the companies leading in the big data trend. The company has developed a platform called Streeyeasy using big data analysis algorithms. The platform enables the company to perfectly know its audience for effective advertising.
  • Trulia is another leading company in this trend. The company is processing realty data and providing its clients with detailed information, such as lists of homes for sale without any barriers.

Blockchain

  • Blockchain is another trend in the real estate industry. The technology is driving cryptocurrencies such as Litecoin, Ethereum, and Bitcoin. Blockchain technology records all transaction without the need for a central verifying authority such as a bank.
  • Today, real estate transactions are made securely, transparently, and without an intermediary courtesy of blockchain. It minimizes the risk of fraud and reduces the paperwork needed when carrying out transactions. Blockchain also reduces the number of mediators involved in real estate besides expediting the settlement process.
  • Blockchain technology is considered a trend in real estate technology because it is providing a solution to perennial pain points in real estate business such as miscommunications, data inaccessibility, and transaction delays. The technology provides the right approach to addressing these predicaments by creating open communication channels in the present real estate networks.
  • PropertyClub is one of the companies leading in this trend. The New York-based real estate company uses blockchain to refine how people market, look for, purchase, sell, and invest in properties. It conducts transactions using cryptocurrencies such as Bitcoin or its own propertyClub Coin (PCC)
  • ManageGo is the other leading company in this trend. Also based in New York, the company is leveraging blockchain for rental property owners, thus helping the process payments.

Virtual Reality (VR) and Augmented Reality (AR)

  • VR/AR is a huge real estate technology trend that is ushering the industry into the third synthesis phase in the evolution of its technology. Using virtual reality, buyers are taking virtual tours of a rental property at any time and from any part of the world.
  • Brockers and builders are using augmented reality to display unfinished spaces and give property buyers a chance to decorate the spaces using mobile application and web apps. Through this technology, customers can investigate a property in detail and cover multiple stages of sale, buying, and decorating processes.
  • VR/AR is considered a trend in real estate technology because many companies are adopting it as they seek to enhance efficiency in managing physical spaces. AR/VR is the new way of shortening the buying journey and helping both buyers and sellers navigate the process more easily and efficiently.
  • Sotheby’s International Realty is among the leading companies in this trend. The company uses VR technology to showcase residences.
  • The Altman Brothers is also a leading company in this trend. The Mountain View-based company is using Matterport’s VR technology to market homes.
Part
03
of three
Part
03

Negative Media on Institutional Financial Investors

The research indicated that as the institutional financial investors are now getting involved in the Fintech industry, there are emerging risks associated with the use of technology. Five negative news articles and media related to institutional financial investors getting involved in the Fintech industry are as follows:

SUMMARY OF FINDINGS

1. An Introduction to Economic Risks by FinTech Companies

2. Small banks you’ve never heard of are quietly enabling the tech takeover of the financial industry

3. Synergy and disruption: Ten trends shaping fintech

4. 2020 banking and capital market's outlook

  • Publication Date: December 3, 2019, by Deloitte.
  • According to the article, "disruptive forces are changing how banking is done."
  • Moreover, technology is considered to be the "foremost among the drivers of disruption."
  • Although the fusion of current technologies which include "machine learning and blockchain, and emerging ones such as quantum computing," have created greater new opportunities today, they have also "engender new risks."

5. How Can Regulators Promote Financial Innovation While Also Protecting Consumers?

  • According to the article, "innovation changes the way consumers access, borrow, and transfer money."
  • Technologies and products such as checks, ATMs, and debit cards have changed the way people use funds.
  • "Mobile banking and payment apps (sometimes referred to as financial technologies, or fintech)" are the innovations that have attracted everyone's attention including consumers, investors, service providers, as well as regulators.
  • However, the use of innovative technologies "whether new ways to deposit old instruments, such as checks, or novel tools like mobile banking apps—can expose regulatory gaps, ambiguities, and duplication."
  • The article further mentioned research finding that demonstrated the "difficulties regulators around the globe face in addressing innovations in the financial system, especially emerging mobile payments and banking platforms."

RESEARCH TECHNOLOGY

In order to find negative news articles and media related to institutional financial investors getting involved in the Fintech industry, our research team initially started searching through various news sites such as CNN, Forbes, and others. Our focus was to find the US focused negative news articles published within the time frame of two years. After an extensive search, we were able to find one news article by CNN published in 2019.

Next, we turned towards industry articles from Deloitte, McKinsey, and others to see if any of them have published any negative article related to institutional financial investors getting involved in the Fintech industry. This search revealed two articles from Deloitte and McKinsey.

Later searches could locate two other negative articles from GlobalSign and Pew Trust related to institutional financial investors getting involved in the Fintech industry.
Sources
Sources