Cantor Backs Knock's $900M Bridge Lending ABS

Knock, a real estate technology company that helps lenders and real estate professionals make it easy for homeowners to buy before they sell, has announced a major expansion of its lending operations, securing $900 million in new lending capacity through the closing of its inaugural $100 million asset-backed securitization, a significant milestone for the real estate technology company.

The transaction, led by Cantor Fitzgerald & Co., will fund Knock's flagship Bridge Loan products and is expected to provide approximately $900 million in revolving capacity over two years, enabling the company to scale and serve more homebuyers nationwide.

Key Details

• Securitization Structure: The $100 million bond issuance is designed with a revolving structure, leveraging the short duration of Knock's bridge loans to efficiently provide up to $900 million in total lending capacity over a two-year period.

• Purpose: The funds will be used exclusively for the Knock Bridge Loan™, which lets homeowners access their home equity to make non-contingent offers on new homes before selling their current one.

• Investor Interest: The inaugural securitization was oversubscribed, drawing strong demand from institutional investors in the residential mortgage-backed securities market, a testament to the perceived stability and attractiveness of the product.

• Programmatic Issuer Plans: Knock plans to continue tapping the bond market to support ongoing expansion and “democratize the home-selling experience”.

• Profitability and Growth: The announcement follows a period of substantial business growth, with Knock reporting a 126% year-over-year increase in funded loans and confirming that the company is now profitable.

• Product Expansion: Knock also increased its maximum bridge loan amount from $750,000 to $1 million to better serve buyers in higher-priced markets.

Industry Impact

• Geographic Reach: The Knock Bridge Loan is now available through thousands of lenders and agents in 32 states and Washington, D.C..

• Innovative Lending Model: Unlike traditional bridge loans, Knock’s solution is structured so the old home is not counted against the buyer’s debt-to-income (DTI) ratio, allowing larger mortgages and more competitive offers.

• Strategic Significance: This asset-backed securitization strengthens Knock’s funding base, with expanded support from both institutional capital providers and regional banks.

Knock’s move into the securitization market marks a notable evolution for both the company and the wider proptech sector, signaling confidence in alternative, equity-unlocking home purchase models and investor appetite for innovative mortgage products.

Understanding Knock's Business Model Mechanics

Knock’s recent financial achievements – a $100 million inaugural asset-backed securitization (ABS) that unlocks $900 million in revolving lending capacity over two years, coupled with an impressive 126% year-over-year growth in funded loans and an oversubscribed offering – clearly position them as a significant player in alternative real estate financing.

Knock's Business Model: The Buy-Before-You-Sell Catalyst

Knock operates as a real estate technology company that empowers homeowners to buy their next home before selling their current one through its proprietary Knock Bridge Loan™. This "Home Swap" model is designed to alleviate the common pain points of a contingent sale, offering speed, convenience, and financial flexibility to the modern homebuyer.

• Direct Equity Access and Non-Contingent Offers: The core proposition is enabling homeowners to tap into the equity of their existing home to make a strong, non-contingent offer on a new property. This is a critical differentiator in competitive housing markets, effectively allowing a borrower to operate like a cash buyer.

  • Strategic Advantage: By removing the "sale contingency" from the equation, Knock eliminates a major hurdle for buyers, making their offers significantly more attractive to sellers. This is a powerful mechanism for securing desired properties rapidly.

  • Enhanced Purchasing Power: Crucially, the Knock Bridge Loan is structured to remove the existing mortgage from the new mortgage's debt-to-income (DTI) ratio calculation. This directly translates into greater qualification capacity for the new home loan.

  • Comprehensive Coverage: The bridge loan funds are versatile, covering everything from the down payment on the new home, to debt payoff, necessary home preparation costs for the old home, and up to six months of mortgage payments on the current residence. This holistic approach de-risks the interim period for the homeowner.

• Efficient Asset Liquidation and Aligned Incentives: Borrowers leverage Knock to purchase and move into their new home, then list their old home on their terms, often after using bridge funds for improvements to maximize the sale price.

  • Speed-to-Sale Focus: Knock's model is geared towards ensuring a quick and optimal sale of the existing property. The fact that 92% of their customers sell their home on the market in less than 90 days for full asking price or above validates their market pricing and home prep strategies.

  • Home Prep Capital: Knock advances up to $35,000 for minor repairs and home prep, which is repaid from the sale proceeds. This aligns incentives, as a better-prepared home sells faster and for more, benefiting both the homeowner and Knock.

  • Post-Sale Fee Structure: Knock charges a 2.25% service fee plus approximately $1,850 in loan costs, which are deducted only after the old house sells. This deferral of fees reduces the upfront burden on the homeowner, further easing the transaction.

• Scalable Funding Mechanism: The success of their inaugural $100 million ABS, generating $900 million in revolving capacity, demonstrates a sophisticated understanding of structured finance for short-duration, revolving credit facilities.

  • Institutional Endorsement: The oversubscribed offering and strong demand from established institutional investors in residential mortgage-backed securities unequivocally validate the underlying asset quality and the robustness of Knock's securitization model.

  • Programmatic Issuance Strategy: Knock’s stated intent to be a "programmatic issuer" indicates a well-defined long-term capital markets strategy, suggesting a repeatable, efficient channel for scaling lending operations.

  • Prefunding as a De-risker: The transaction being 75% prefunded signals confidence in a robust origination pipeline, providing a layer of stability to the funding mechanism and reducing future market dependency.

Dissecting Credit Quality and Underwriting

Knock's approach, while leveraging technology, integrates several layers of risk mitigation.

• Robust Borrower Credit Profiles: The recent securitization provides a telling snapshot of their target borrower. The funded portion of the loans featured a 766 weighted average FICO.

  • Lower Risk Segment: A FICO score of 766 indicates a prime borrower segment, significantly reducing default risk and aligning with the expectations of institutional investors for high-quality ABS collateral. This suggests Knock is not chasing subprime exposure but rather serving a creditworthy demographic with a specific liquidity need.

  • Conservative LTV Ratios: The loans also boasted a 35% weighted average Loan-to-Value (LTV) and a 72% weighted average Combined Loan-to-Value (CLTV). These are remarkably conservative metrics.

  • Equity as a Buffer: Such low LTVs indicate substantial equity cushions in the existing homes, providing a strong buffer against potential market fluctuations or minor performance issues. This significantly de-risks the bridge loan against collateral depreciation.

  • Reduced Default Incentives: Homeowners with significant equity are less likely to default, as they have a substantial financial interest in the property's successful sale.

• Asset-Centric Eligibility Criteria: Knock’s underwriting extends beyond traditional borrower credit, with a sharp focus on the underlying real estate asset's marketability.

  • Property Type and Condition: They focus on single-family homes, townhomes, and detached homes that are owner-occupied and in good condition. They explicitly exclude bank-owned, distressed properties, or those with significant foundation or water damage. This selection minimizes risks associated with illiquid or problematic assets.

  • Market Data Requirement: Knock requires sufficient recent sales data for similar homes in the area to make an offer. This ensures their valuations are data-driven and the property's marketability is verifiable, a crucial element for asset-backed financing.

  • Max Loan Amounts: The increase in maximum bridge loan amounts to $1 million, and up to $2 million in high-cost markets, demonstrates confidence in their valuation and risk management for higher-value properties, likely supported by their strong LTV parameters.

Charge-off Rates: A Critical Data Gap

Knock's specific charge-off rates is not available in the public. This is a common characteristic of newer fintech lenders whose performance data may not yet be as long-tenured or publicly disclosed as traditional banks. However, the strong WA FICO and low LTVs observed in their securitized pool, coupled with the high success rate of customers selling their homes quickly and profitably, would strongly suggest low historical charge-offs for the securitized assets. The guaranteed purchase offer further acts as a backstop, reducing the likelihood of a complete charge-off for the bridge loan.

Underwriting Differentiation from Traditional Players

Knock’s underwriting approach diverges significantly from conventional lending by tackling specific real estate transaction friction points that traditional lenders often cannot or choose not to address.

1. DTI Circumvention for Seamless Transitions: The most impactful difference is how the Knock Bridge Loan eliminates the old home's mortgage from the new mortgage calculation for DTI purposes. Traditional lenders typically treat a bridge loan as additional debt, which can severely restrict a borrower’s ability to qualify for a new mortgage, especially in high-cost markets. Knock's structure effectively bypasses this constraint, providing a unique financing pathway.

   • Impact on Qualification: This allows creditworthy borrowers who are "house-rich but cash-poor" or simply unable to carry two mortgages simultaneously to qualify for a new home loan they otherwise couldn't afford, expanding the pool of eligible homebuyers.

   • Risk Transfer: While the old mortgage is "eliminated" from the DTI, Knock covers those payments for up to six months, essentially taking on the short-term financing burden and managing the transition.

2. Guaranteed Purchase Offer as a De-Risking Feature: Knock provides a guaranteed backup offer on the old home if it doesn't sell within 180 days. This is a strategic credit enhancement not typically found in traditional bridge loans.

   • Liquidity Assurance: For the homeowner, it’s peace of mind; for Knock and its capital partners, it’s an exit strategy that significantly mitigates market risk and avoids prolonged exposure to an unsold asset.

   • Focus on Market Value: The primary intent is for the home to sell on the open market, but the KPO acts as a floor, ensuring that the bridge loan can be settled.

3. Active Asset Management and Value Enhancement: By providing funds for home preparation and minor repairs, Knock actively participates in enhancing the marketability and value of the collateral.

   • Proactive Risk Mitigation: This contrasts with traditional lenders who typically offer a loan and then passively monitor collateral. Knock's approach is proactive, ensuring the asset is optimized for sale, which directly reduces the duration and risk of the bridge loan.

   • Higher Sale Proceeds: This strategy contributes to the high percentage of Knock customers selling at or above asking price, which benefits all parties involved by maximizing recovery and minimizing potential shortfalls.

4. Partnership-Driven Model: Knock operates as a business-to-business platform, partnering with thousands of lenders and real estate agents across 32 states and the District of Columbia.

   • Leveraging Existing Networks: Instead of competing directly as a full-stack lender, Knock integrates into the existing real estate ecosystem, enabling traditional players to offer an innovative solution without overhauling their own operations.

   • Specialized Focus: This allows Knock to specialize narrowly in the "buy before you sell" segment, optimizing its technology, processes, and capital for this specific market friction point, a level of focus often challenging for diversified traditional banks.

In essence, Knock's business model is a testament to structured innovation, addressing a significant market need with a well-capitalized, risk-mitigated solution. The strong investor demand for their ABS indicates a recognition of their effective underwriting, prudent credit quality, and the intrinsic value of solving the home swap dilemma.

_{Sources: Knock, National Mortgage News, Product Mint, List with Clever, Global Newswire}

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