An alternative equity tapping company has made “taking on the reverse mortgage industry” central to its narrative as it seeks to show Canadian homeowners a different way to tap into their home equity, and says that its eyes are focused on expanding into the United States in the coming months now that it is armed with a sizable amount of additional investment capital.
Fraction Technologies, a tech company offering a platform that it says aims for “socially conscious financial solutions,” has a signature product called the “Fraction Appreciation Mortgage” that functions as a shared equity investment. A prospective customer applies for the product and, upon the passage of a credit check and an appraisal of the property for approval, can receive up to 40% of their home’s value with a check-in every five years.
The customer has the option to “buy out” Fraction at any time, the company says. No additional details were as-yet available.
Recently, Fraction — which is based in Vancouver, British Columbia and San Francisco, Calif. — raised $289 million CAD (roughly $227 million USD) in a combination of equity and debt financing from entities including Impression Ventures, Primetime Partners, Global Founders Capital, and Panache Ventures. The funding will be used to launch its offering in Canada, expand its tech platform and team and to prepare for an impending launch in the United States.
At the top of its press release announcing the new series of funding, Fraction proclaims it is “taking on the reverse mortgage industry with a fairer, more transparent solution,” the release says.
Part of its rationale for targeting the reverse mortgage industry is centered on the increasing desire displayed by seniors to age in place, with the understanding that taking on additional debt on a fixed income could lead to less optimal retirement financing outcomes.
“Refinancing a mortgage with a low rate does not help homeowners with immediate cash needs for retirement income, or unexpected large expenses,” said Rayan Rafay, COO/CFO and co-founder of Fraction in an announcement of the new funding round, and who previously served as CFO/COO and Chief Investment Officer at alternative equity tapping company Unison. “Reverse mortgages can provide that upfront cash, but do not adequately protect the homeowner, and come with higher interest rates and restrictions.”
One of the investors in Fraction also discussed how the Fraction product is suited to assist seniors with their desires to age in place.
“The Fraction Appreciation Mortgage is ideal for older adults eager to age in place, but who are faced with insufficient retirement funds to cover the cost of their healthcare and other expenses,” said Abby Miller Levy, Managing Partner of Primetime Partners. “The Fraction team has designed the most consumer-friendly home equity product in the industry and is eager to help millions of homeowners remain in their home with financial peace of mind.”
Previously, many of the more active alternative equity tapping companies that have a presence in the United States have more openly discussed either coexistence or more overt partnership with the reverse mortgage industry. At RMD’s virtual conference event HEQ: The Future of Home Equity in Retirement last September, leaders at three different alternative equity tapping companies openly discussed either their willingness or desire to partner with reverse mortgage companies where appropriate.
“I think it may be helpful to first perhaps dispel a misperception that home equity investments are competitive with reverse mortgages, because I think for the most part, they’re really not,” said Jeffrey Glass, CEO of Hometap at the event. “It is quite an adjacent product. The way I think about it is while they share a very similar, high-level goal of helping a homeowner see cash without having to make monthly payments, home equity investments are really quite different.”
