Product showcase: Blockchain as a mortgage alternative

Start-up creates blockchain ecosystem to enable affordable homebuying

Product showcase: Blockchain as a mortgage alternative

Haus pitches itself as a tech company offering a way to finance home purchases without needing a mortgage. Instead, the fintech start-up and investor uses a new “financial ecosystem” based on blockchain designed to eliminate reliance on borrowing money.

The alternative is a necessary one in today’s marketplace, said Haus CEO Jonathan McNulty (pictured).

“We’re a technology company that wanted to find a different way of financing homes other than debt,” McNulty said, because mortgages place a tremendous amount of leverage and risk onto consumers.

“A mortgage provides a debt where there’s a guaranteed return based on the interest rate, [but] we don’t have a guaranteed return,” McNulty said. “We’re a partner with customers where we can make money if the home goes up in value, but we can also lose money if the home goes down. It’s a true partnership.”

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Uber co-founder Garrett Camp initially launched Haus in 2016, with a focus on making the home-buying process more transparent. McNulty came on as CEO in 2018 and has helped refine the company’s business model.

A little over a year ago, Haus launched its partnership program, where it invests in a home for a client. Haus takes the place of a mortgage, and the client makes a deeply discounted monthly payment to Haus.

Recently, Haus launched HausCoin ($Haus), an investment vehicle and home equity security token for homes that’s built on Ethereum blockchain. Investors can purchase $Haus backed 1:1 by home equity, and gain returns as those assets increase in value. Essentially, HausCoin serves as the investment holding company for all Haus equity agreements.

Now, that system promotes home ownership for a flat fee. By leveraging blockchain, Haus allows customers to own a home for $1,000 per month on homes with a Haus investment value of up to $2 million (added costs for customers include property taxes, insurance, maintenance and HOA payments, similar to a mortgage). Customers can also buy and sell their equity in order to have liquidity as needed.

Multiple levels

Haus has multiple levels of technology in play, not unlike the mortgage market.

“if you think about the mortgage market, you have lenders giving out loans, but then what they do is they bundle them into securities [and then] sell them as mortgage back securities, and those… are traded in various markets,” McNulty said. “In order to create this solution, we had to recreate that ecosystem in an equity market.”

As McNulty explained, where mortgages make their money on interest, Haus makes its money based on the equity appreciation or depreciation that happens on the home itself.

“We break [the house] into a million pieces of equity, and we allow customers to buy the portion that they can afford, with a minimum of 10%,” McNulty said. “[For example], they [might] buy 10% and we buy 90% of that equity. Then, they have a fixed monthly payment with us, which right now… is just $1,000 a month.”

There is also a technology dashboard, and with a click of a button, customers can buy more equity whenever they want at whatever the current price is, or sell the equity to Haus at the current price if they need access to cash or equity.

Before the purchase, Haus does an onsite appraisal to get an accurate value and set the base standard price. After that, Haus has six different automated valuation mechanisms (AVMs) that value the home regularly, so the number is always accurate. (AVMs are computer driven mathematical formulas that help value homes with data such as property characteristics and local market price trends.)

Those valuations then get plugged back into Haus’s technology stack.

“If you look at each home that we’re breaking into pieces of equity, that’s based on a theory of NFT (non-fungible token) technology – a [sort of deed of ownership and authenticity certificate] between consumers and their homes,” McNulty said.

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When that happens, the portion of the NFT that Haus owns is assigned over to HausCoin – the entity that holds the equity interest in the homes. Then, HausCoin assigns out what are known as ERC-20 tokens based on Ethereum, and those tokens are backed 1:1 by home equity, according to McNulty.

In the end, consumers win from the new system, he added. “Consumers now have this very affordable flat fee pricing on a home where they can buy the equity they want, and that equity is representative,” McNulty said.

“Then you have investors who can come in and buy the equity that is backing all of these homes and all of these markets that essentially replaces the [mortgage-backed securities] market within the equity-driven market.”

Growth and partnerships

Haus partners with real estate brokers and agents, which offer its blockchain as a home-buying option. For buyers who are interested and get pre-qualified, Haus then underwrites the buyers, contingent on an appraisal and inspection.

Right now, Haus has just under 20 employees and has raised close to $20 million in venture capital funding to date.

The company is headquartered in San Francisco and does business so far in California, Washington and Oregon. To date, Haus has pushed more than $20 million of home equity into HausCoin. Expectations are the number will go far higher over time.

“I hope it will become the new default way that people finance their homes,” McNulty said. “If we can get that done, we will end up creating not only more affordability for consumers, but more stability in the larger ecosystem of home equity.”