Investor Presentation
We Make Homeownership Less Risky Period! For the first time ever, homeowners can diversify what is often their largest, most concentrated asset their home In so doing, they can substantially reduce their home price and foreclosure risk up to 40% 70 % Creditors can see up to 70% decrease in credit risk, with reductions in both probability of default and loss severity, and reduced associated costs
The Problem HOMEOWNERS Local market home prices are less diversified and inherently more volatile (by as much as 65-percent) than a national home price index. The inability to diversify the home has placed the typical homeowner s net worth and financial well-being at considerable risk. And increased their risk of foreclosure by equal measure. CREDITORS The current home-finance market is fraught with everincreasing systemic credit risk. As witnessed during the 2008 financial crisis and thereafter, this creates instability in the world s largest asset market, which can negatively impact the U.S. economy bad for all of us.
Market Opportunity 77 million Homeowners TOTAL AVAILABLE U.S. MARKET Total Cumulative Value of all Homes in the U.S. - $31.8 Trillion HDC Total Available Market (TAM) - $31.8 billion ($31.8 trillion X 10 bps) INITIAL TARGET MARKET New and first-time homebuyers, followed by existing homeowners Gen Xers (age 38 52) 25-percent of recently purchased homes Younger Boomers (age 53 62) 32-percent of recently purchased home Short-horizon homebuyers (ex. Military) 5.5 million Annual home buyers
Home Diversification Solution SM HOME DIVERSIFICATION SOLUTION noun home di ver si fi cation so lu tion \ˈhome\ \dəˌvərsəfəˈkāsh(ə)n\\səˈlo osh(ə)n\ An innovative new financial product that combines a traditional first mortgage with an Agreement tied to a national versus local home price index. This feature enables the borrower to diversify the price risk on their home from local to national risk. The product can also be used by homeowners with no mortgage. In conjunction with a traditional 1st Agreement secured by a lien and mortgage, customer agrees to originated with a traditional 1st exchange the performance of their mortgage. local hpi for a national composite index tied to the Agreement and With an initial zero balance, the based on the value of the home. Agreement balance fluctuates monthly (positive or negative) Diversifies price risk on the home based on the relative performance typically a homeowner s single of the local real estate market as largest investment from local to compared to the diversified national. national market. Mortgage Servicer services both 1st mortgage and lien, and provides combined billing. Or, HDC separately services the Home Diversification Agreement. Note: An Agreement can also be utilized by homeowners with no mortgage. Full explanation available upon request. Based on historical analysis of home price index (HPI) data, price risk is reduced by up to 40% due to diversification. The same holds true for foreclosure risk. Home Diversification Solution is a service mark of Home Diversification Corporation. Patents Pending.
Mortgage Origination Model Go To Market Approach Phase 1 Preliminary Limited Pilot Program (managed internally 10 to 20 participants) Note: 8 of 8 of friends and family approached have signed up to date! Instigate Retail Consumer sales model with B2C website and targeted social media marketing Primary Pilot Program with Mortgage Origination Partner Phase 2 Sell to public through channel partners and direct through website and call center Pricing and Positioning Promote home diversification (risk reduction) for the largest cross-section of new/first-time home buyers and then existing homeowners. Projected price is $145 origination fee + 10 bps annually on the HDC Agreement value of a home - equating to less than $19 p/m for the typical $225k home. Pricing Strategy Provide inexpensive solution for the typical homeowner Pricing provides 71-percent net profit margin per unit Pricing strategy facilitates fast and deep penetration within our target markets Utilize pricing as a competitive advantage and a barrier to entry to counter competition
Non-Mortgage Origination Model Our Home Diversification Agreements make compelling economic sense for homeowners without a simultaneous first-mortgage origination. We intend to primarily market through mortgage servicers who will offer our product to their serviced customer base, as well other channel partners, including investor wealth managers. Opens up the full $30T market opportunity Servicers benefit from substantial reduction in excessive non-performing loan operating costs Servicing cost savings of.02% (or ~ $50) per converted mortgage Plans to develop and widely distribute a holistic wealth management platform to include real estate as an asset class, which would facilitate distribution of our home diversification product 42% of surveyed national homeowners extremely or very interest in home diversification without concurrent first mortgage origination
PLS Opportunity Many tens of millions of consumers with non-standard credit (e.g., low down payment, low credit score, high debt to income, non-standard documentation) will have access to affordable home financing through private label securitization. The expected credit risk reduction of up to 70% would theoretically reduce the expensive PLS subordinate credit support tranches, with the PLS structure costsavings passed on to borrowers in the form of lower interest rates Very substantial new PLS volume expected
Benefits to Homeowners ~40% reduction in risk to their home equity typically their largest single investment. Same holds true regarding foreclosure risk Value-added economic benefit of more than 1% (2,250 on typical $225k home) annually to homeowners after fees. (Based on industry calculation to measure diversification benefit) Enormous immediate opportunity with support from the leading industry authorities and influencers to provide access to affordable home financing through private label securitization (PLS) 67% of the $5.5M home buyers annually cannot afford the standard 20% down payment and pay expensive (~75 bps) PMI, FHA and piggyback second mortgage fees. With our product we expect they will save ~$150/ per month in PMI fees Analysis indicates that a 5% down payment Home Diversification Solution has 33% less credit risk than a standard 20%-down mortgage Lower interest rate as a result of reduced risk
Benefits to Creditor Partners Based on our validated expert simulation model, total credit losses are reduced by 70%, driven by reductions in both probability of default and loss severity rates. Significant benefits to consumer customers Increased ability to write more business Competitive advantage due to differentiation
Strong Consumer Interest Two separate Amazon Mechanical Turk Surveys (each with a sample size of 500 homeowners nationwide) demonstrated strong product acceptance. 54% extremely or very interested in our Home Diversification Solution product offering Additional 20% at least somewhat interested resulting in 74% total interest Powerful message surrounding diversification benefit resonates with consumers The top reasons provided by respondents regarding their desire to use the product included the following: Security, peace of mind, down market protection, avoiding 2008 again Personal loss in past, local markets down in past Diversification benefit not wanting all of their eggs in one basket. You don t just own 1 stock, but a diversified portfolio Based on survey results, particularly the narrative feedback, growth to 6.8-percent market share conservatively projected by year 5 TRACTION
Marketing and Sales Strategy Preliminary Limited Pilot Programs and Retail introduction Q2 2019 Primary Pilot Program with Originator Q3/4 2019 Strategic partnerships expected with originator(s) and others Strategic investment partner prospects include Quicken and Freedom Mortgage (we are in delayed discussions), plus any of 30 national originators, top national banks, etc Private Label Implementation of marketing plan to create public and industry-wide awareness of our product Promote company and product through ongoing campaigns (heavy reliance on content marketing) directed to each of our targeted markets and potential channel distribution partners Engage in both inbound and outbound (B2C/B2B) marketing strategies, each using combinations of owned, earned and paid media campaigns and tactics See business plan for comprehensive description of marketing strategy
Management Team The HDC senior management team has significant relevant experience and is fully capable of implementing our business model and delivering robust shareholder value Marc Biron (CEO) CFA who founded HDC in 2015 and prior was a risk management and portfolio management executive for over 13 years at a major superregional bank... (See BP for full bio) David Margulies Monir Mamoun John Cyr (President) Senior level mortgage banking executive with 30 years of experience in all aspects of mortgage banking, including building and leading top ranked regional and national banking and mortgage institutions (See BP for full bio) (CTO/COO) Technology industry professional with decades of experience, including working in or with more than 20 startups. Expert in development of rapid startup-style MVP (minimum viable product) launches and scalable growthstage technology infrastructure (See BP for full bio) (CRO) 30-plus year career in commercial banking Risk Management. Leadership positions ranging from SVP of Credit Policy to COO for Wholesale Credit Risk of a $150BN bank (See BP for full bio) HDC boasts a strong, deep and active Advisory Board with more than 150 years of combined senior level industry experience
Financial Projections Key Operating Projections 2019 - Gross Revenues $2.1MM / NIBT ($5.4)MM 2020 - Gross Revenues $333MM / NIBT $65MM 2021 - Gross Revenues $733MM / NIBT $334MM 2022 - Gross Revenues $1.4B / NIBT $857MM 2023 - Gross Revenues $2.7B / NIBT $1.8B (Note complete pro forma financials are available upon request)
Competition The Home Diversification market is in its nascent stage with no product currently available allowing a homeowner to diversify their local-market price risk with a less-volatile composite national index price. That said, we view the following as potential competitors: Companies with products that protect homeowners and their mortgages in the event of job loss, disability or death. Private mortgage insurance (PMI) providers - pays the lender in the event the homeowner stops making mortgage payments. Companies offering real estate investment strategies that seek to address market volatility using the principles of portfolio diversification None of these protect the actual value of individual homes Forward looking, the benefits to homeowners and industry stakeholders ensure that the practice of home diversification will become commonplace within the home finance industry. We know that competition from larger existing financial firms is inevitable.
Competitive Advantages With more than three years vested in development, we enjoy significant competitive advantages over any competition in the nescient home diversification space. We enjoy first mover and inventor advantage We have a Patent Pending status on the proprietary algorithm that enables our product, providing us with some protection from competition Our Primary Pilot Program will help establish our brand (leveraged off the partnering originator) and allow us to cost-effectively scale operations. In addition to standing up our product and operations, the program will open significant business development and partnering opportunities, further solidifying our position in the space We offer a job loss mitigation feature at no cost to the homeowner. Although there are current job loss mortgage protection products on the market (expensive), none provide home diversification
Investment and Use of Funds The funding proceeds will be used as follows: Up to $500K for the acquisition of an exclusive HPI data source. Negotiations are under way which include creative approaches that cost significantly less $25k for the completion of the technology platform $50k for legal and regulatory review $100k for the Primary Pilot Program rollout HDC will require a $5.8 million investment to bring the initial phase to fruition. These funds will help bolster protection from competition, support the initial operations and provide invaluable realworld feedback through the Primary Pilot program. At the end of the initial phase we will have a fully operational business with proven product that is capable of generating revenue and that is poised for substantial growth going forward. $4.9 million (approx.) for 18 month runway to break-even cash flow. Funds will support staffing, advertising and marketing, data licensing and other operating costs for our worst-case financial projections
Investor Return In consideration for the $5.8 million equity investment in this initial fundraising endeavor, investor or investing group will collectively receive Simple Agreement for Future Equity (SAFE) notes. Monetized returns on the first half of those notes will be up to 10X (depending on the actual valuation cap agreed) upon the contemplated partial take-out deal from an established market servicer/originator. The remaining note portions will be convertible to preferred shares at a 20-percent discount to a pricing event with a negotiated valuation cap. Depending on negotiated valuation cap and based on supportable financial projections, expected 5-yr returns exceed 500 times initial investment. Pre-money discounted cash flow valuation exceeding $15 billion assuming a 25% cash flow discount rate and 30 times price earnings multiple in year five. Please visit us at www.homediversification.com for more info.