Rithm buys $1B in home reno loans from Upgrade

Rithm Capital announced it has entered into an agreement to purchase $1 billion worth of loans from lending fintech Upgrade.

The forward-flow agreement between the real estate investment trust and the San Francisco-based neobank has Rithm acquiring $1 billion worth of home improvement loans originated and serviced by Upgrade over the coming year. 

The deal adds momentum to Rithm's aspirations to grow and diversify the asset management side of its business, something it has so far accomplished through various acquisitions and partnerships over the past year. Rithm Capital is also the parent company of top five mortgage lender Newrez

"Home improvement loans are a rapidly growing segment of the consumer market and one where our established capabilities can be particularly valuable," said Rithm Capital President and CEO Michael Nierenberg in a press release. 

"This agreement will help merchants nationwide expand their reach and provide their customers with access to the capital they need." 

The latest announcement comes just days after Nierenberg said during New York-based Rithm's second-quarter earnings call that acquisitions of financial assets would remain a focus going forward. It also follows the company's mergers and acquisitions of recent years, which include a large consumer-loan portfolio from Goldman Sachs as well as the purchase of hedge fund manager Sculptor Capital.  

"This agreement builds on Rithm's depth and breadth of expertise acquiring and managing consumer loans," Nierenberg said. 

The deal also offers Upgrade capital to build its lending capabilities, particularly for renovation products. Since its founding in 2017, Upgrade has originated more than $2 billion worth of home improvement credit to what it terms "mainstream" consumers, with total loan count now exceeding 100,000 transactions. 

"Rithm Capital is an ideal capital partner for us as we continue to grow our home improvement product," remarked Upgrade co-founder and CEO Renaud Laplanche. "Rithm's investment underscores the quality of the assets generated through our platform and provides the expertise and scale we need to meet demand."  

The home improvement outlook

With high mortgage rates keeping many homeowners from relocating and more baby boomers choosing to age in place, broader housing trends are fueling demand for the home improvement loans Upgrade offers.

The Harvard Joint Center for Housing Studies expects home renovation spending to top $600 billion in 2025, marking a nearly 50% increase since 2020.

In separate research published this summer, Harvard JCHS also found financially stretched lower-income homeowners were twice as likely to have foregone spending on home repairs in 2023 compared to higher-earning segments. Only 14% of households with incomes above $172,000 said no money was spent on renovation that year, compared to 28% of the population with incomes below $37,500. 

Among all households, 20% of homeowners said they ceased spending on home improvement in 2023, but the same share allotted over $10,000 for repairs and renovation, according to the Harvard report. 

Still, signs currently showing up in construction starts and permitting activity may pour cold water on expenditures, meaning near-term moderation in the pace of activity, Harvard researchers said in more recent analysis. Expectations are for remodeling spending to continue rising, at a slower pace of 1.2% in the next 12 months compared to 1.8% over the previous year. 

"It will be important to keep an eye on whether the housing market shows any sign of rebound in the second half of the year, to assess if this slowdown is the beginning of a more significant downturn," said Chris Herbert, managing director at Harvard JCMS, in a press statement.