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- [00:00]
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IBM AI Representative
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- [01:47]
Chase Business Advertiser
Bloomberg Audio Studios Podcasts Radio News this is Bloomberg
- [01:54]
Bloomberg Businessweek Daily Host
Business Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens the Bloomberg Business Week Daily Podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
- [02:16]
Emily Chang
I want to bring in Ed Ludlow, the co host of Bloomberg Tech on Bloomberg tv. He joins us from our San Francisco bureau. Ed, we were going to talk to you about Space X at one point. You know, today or this week? That's what we've been talking about. And then we see the news that OpenAI could be filing in the coming days. What else can you tell us?
- [02:34]
Ed Ludlow
Curious timing.
- [02:36]
Emily Chang
Is it because. Is it. I know. Is it because the lawsuit or is it because of what Space X is doing? Are these. You know, there's a lot of Elon tied up in this yeah.
- [02:45]
Ed Ludlow
So, you know, our source at Bloomberg is saying that it's coming weeks, the Journal had said coming days. You know, and there is a distinction between that in when you're filing the net net is, you know, Open Air being in a position where it could be ready to IPO September. We had been much more firm in our reporting on Anthropic. That Anthropic was looking at October for an ipo, but, but very much framed in a race. Right. So to answer your question, the overhang was the trial. Musk suing Sam Altman, the CEO of OpenAI and the other co founder Greg, Greg Brockman. And indeed, like Bloomberg Intelligence has written about this in their research. Right. Once the jury decided to reject Elon Musk's suit, even though Musk plans to appeal, it removed an overhang on the idea that that Open Air could move forward to a, to a ipo in part because of, you know, the financial potential, financial penalty that, that, that Musk was pursuing. That's where we stand.
- [03:46]
Tim Stannweck
But still at the timing, curious for maybe a few more reasons as well. I mean, we have Space X also preparing to go public. We, we have Anthropic. You have to wonder whether all of these firms are kind of rushing to tap into the public markets before the momentum slows down.
- [04:05]
Ed Ludlow
Yeah, I guess that's an important point. Like whenever you have a big ipo, particularly a technology ipo, there always has to be a story behind it. Right. You know, our reporting is that SpaceX is s one could flip public today, brace. It could be a wild few hours to come. But there's also the issue of like, is there infinite liquidity in capital markets? If Space X is going to do the biggest IPO of all time at a valuation of more than 2 trillion, raise $75 billion and then do the math on, on how much of the company they offer, does that take the oxygen out of the room for an Open Air and. Or an anthropic. Right. If Open Air and Anthropic both want to go public, you know, towards that September, October timeframe, end of the year, you know, that gives investors a really interesting choice. And like, part of what we've been reporting over the last six months in aggregate is like, Anthropic has a lot of momentum right now and the big takeover night is a case study of SoftBank being very concentrated in OpenAI. These are all considerations.
- [05:07]
Emily Chang
I love that story. If you missed that one, check it out on the Bloomberg terminal. Today's big take, as Ed mentioned, and on the Anthropic side of this, does this timing matter who's first? And because if we think about these two different companies, the way that they're valued and what they offer, is it fair to say that, that investors will be making a choice of one or the other?
- [05:29]
Ed Ludlow
It's very bifurcated in private markets there are those that stick to open AI. Right. SoftBank is an interesting example. There are several venture firms and late stage or private growth equity investors, indeed sovereigns that have exposure to both. The latest reporting from us is that, you know, Natasha and I reported, I think was last week, week before Anthropic is now sort of taking more seriously raising money in the private markets like more than 35 billion at an evaluation between 900 billion and 1 trillion. The reports on what Open Air valuation would be in an IPO is 1 trillion. And basically the way that it puts me Tim, out here on the left coast to the west coast is you have Anthropic, OpenAI, Google Matter X I, several lanes. But in the market is there room for all of them? And you know that conversation comes up
- [06:24]
Tim Stannweck
quite a lot and I mean you have to wonder also like how much money, how much more capital do they really need to raise? Ed, can you tell us a little bit about like what are really the stated goals at least for Open Air, for what they would do with this, this new capital that they would raise?
- [06:42]
Ed Ludlow
Well, they do, they do. You know, the argument that OpenAI to their credit has been consistent on is that if they had more compute a users of their technology would not be constrained. Right. That's something that's been talked about on social media just in the last 24 hours. But they could also offer more stuff. The concern is different. The concern is that the revenue growths just simply do not keep pace with the spending growth to justify an ipo. Right. When you go public through the mechanism of the filing, you open up to the world about your business and the finances of that. And you know, in the world of tech, profit isn't always important but investors still want to kind of see what the plan is longer term, the total addressable market and the road to profit. And so that's more of the calculus with OpenAI specifically.
- [07:32]
Emily Chang
Well, let's talk about those books that, I mean it's a private company at this point. It's, you know, we don't know, we don't have full disclosures at this point. But what can you tell us what has been reported when it comes to OpenAI's books? What numbers do we know I'm trying
- [07:45]
Ed Ludlow
to scramble to pull up my notes now, but basically, you know that revenue run rates in the tens of billions and Open Air's own projections for the coming 12 months through the 2030 is for a lot of growth. But you have to remember that Open Air is on the hook for also almost $1 trillion of projects around the world, largely relating to infrastructure, where there's a mix of it's committing capital or a partner is committing capital on its behalf, or it is on the hook to be the lead tenant and lease that capacity, but somebody else has built it so that, that's the underlying concern. Revenue in the tens of billions, but the exposure, the committed spending over time to being in the hundreds of billions and that being worrying.
- [08:27]
Emily Chang
Did I hear you say anything about profit?
- [08:30]
Ed Ludlow
Yeah, I don't, you know, I just, I just don't think we're anywhere near that. Right. You know how, you know, in the economics of AI, for a company that trains a model and then deploys it through a series of products, it's on a dollar per token basis. Okay, Right. That's, that's the study. But your compute costs will directly factor into that.
- [08:50]
Emily Chang
There are some people out there, Ed, who may be old fashioned and say maybe a company should wait until it's profitable at least for a few consecutive quarters to, to go public. Is that a different era?
- [08:58]
Ed Ludlow
I don't know. You know, is a student of Silicon Valley and you know, one of the reasons I came here to San Francisco, like the people that back those companies at an early stage right through to taking them public, you know, whether it's software or hardware, there's not really that, that focus. Know, we should not get into this, but it's like I remember the days where people were fixated on whether Uber would have positive ebitda. And it's like, and there are plenty
- [09:24]
Emily Chang
of companies that we should know. There are plenty of companies that do go public that are not yet profitable. And there's definitely their appetite, no question.
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Ed Ludlow
Yeah, yeah, yeah, yeah. The one thing I would say real quick, remember Rivian, right. Was the sixth biggest IPO in US history and that was in 2021. Yeah.
- [09:39]
Kurt Wagner
Here we are.
- [09:39]
Ed Ludlow
They're still not profitable. So, you know, that's, that's a good
- [09:43]
Tim Stannweck
indicator who is poised to benefit most from the Open Air ipo. And I imagine some of the investors in Open Air right now are some of the ones that are also tied up in these other large companies potentially going public soon.
- [09:58]
Ed Ludlow
Well, it's a mix of the strategics which are other technology companies. I would say to the audience, go and read our reporting which was linked to the trial between Elon Musk and Sam Altman. Again dismissed by the jury and the judge, but about Microsoft's economic gains from its initial investments in, in open AI. And then at the other end of the spectrum you have somebody like Vinod Khoisla of Khosla Ventures, a venture capitalist who wrote one of the first institutional checks into OpenAI at the time that was at issue in that trial at very early stages where it was a very different beast. And so over time and then the people themselves. Right. Sam Altman, Greg. Sam Altman has a very curious lack of stake in Open Air which you can read about. Greg Brockman has a more sizable stake. You know, the individuals at play as well that, that, that is what's at question here.
- [10:50]
Emily Chang
It remind us how Open Air has, has been changing its business, sort of trimming or more focusing on, on certain parts of, of its business ahead of an ipo. I'm thinking about Sora for example.
- [11:01]
Ed Ludlow
Yeah. So like you know, Sora was an interesting project. There was a partnership and sort of financial relationship with Disney that was scaled back. You know, Sora being a tool that is a text to image tool. So when we talk about generative AI, generative can mean you create something that's in different forms. We're very accustomed to chat GPT where the input is text, the prompt is text and the output is text. In Sora's case it was image but it didn't, you know, it both on usage and the compute costs and the net results of it, it didn't really work. So that's part one, the other part, you know, and this is where it pits itself more closely with anthropic. And based on our recent reporting, Elon Musk's X AI as well is going after the enterprise customer. You know, think in the world of finance or health care, etc. Getting those organizations at scale to use either the underlying model or to use the tool. That has been an area where anthropic really focused and it's been a big driver of revenue for growth for them. OpenAI's origin was chat GPT. Everyday people like you, me and Emily just using chat GPT for hours and hours. But they want that enterprise business to kind of outpace it.
- [12:09]
Emily Chang
Right.
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Tim Stannweck
I'm very curious if there's going to be any use of chatbots at least on the banking side they're probably not allowed to do this. But drafting these prospectuses but that's not my question for you, Ed. My question is, of course, when the paperwork finally comes out, can you sum up like the one or two big questions that you have about this company that will potentially be revealed in this paperwork?
- [12:34]
Ed Ludlow
Wait, we're still talking about OpenAI?
- [12:36]
Tim Stannweck
Yeah.
- [12:37]
Ed Ludlow
Well, so this, this is the thing, right? So like this mechanics to this, what we're talking about is in the first instance, reports from various media, including Bloomberg News, that they are thinking of filing confidentially. It hasn't even happened yet.
- [12:51]
Tim Stannweck
Right.
- [12:51]
Ed Ludlow
Then there's a period of time where you don't know what's in it unless you, you know, you know, somebody pretty high up on the inside until it flips public. That's the moment we're waiting for today with Space X. Space x file confidentially. May 4th. Like, not May 4th, Tim. When was I in Florida for Artemis? The beginning of April.
- [13:09]
Emily Chang
Yeah, beginning April.
- [13:11]
Ed Ludlow
Yeah. So then that was when we reported, citing sources that the confidential filing, what happens after that is it goes back to the sec. The SEC makes recommendations for how it could be changed and updated and at some point it goes public and that's when you find out about everything. So I'm not answering your question, Emily, but I think we're probably a little ways off from learning. But it's about financials, where they see the addressable market and then surprises along the way, like the structure of the company, but ownership.
- [13:37]
Emily Chang
I'm really glad you went to Space X and that's where I want to add just an end at just in the last minute with you or so. And it's about Space X AI as it now is, versus, you know, anthropic and Open Air, specifically in the context of Open Air and a potential ipo because Space X now has X as part of it. Does that pull some oxygen, slash interest from OpenAI and Anthropic?
- [14:01]
Ed Ludlow
Yeah. So like just one easy answer is like debt. So when Space X merged with Xi, the Space X part was valued at about a trillion. The Xi part 250 billion. So the combined entity 1.25 trillion. But space X also took on XI to its balance sheet, which would include debt. So then that should be disclosed in the S1 when it gets flipped publicly. There should be something in there about that. It's like also the story why is a rocket company who's building constellations of satellite for Internet Starlink and wants to build data centers in space acquiring a frontier lab? That should kind of be answered right in the, in the document and prospectus because it will help investors understand it ahead of the ipo.
- [14:45]
Emily Chang
And there's also the question that we don't have time to answer what it means for Tesla and Tesla shareholders because there that's part of the conversation too. And love the co host of Bloomberg Tech on Bloomberg tv. Stay with us. More from Bloomberg businessweek Daily Coming up after this
- [15:05]
IBM AI Representative
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- [15:56]
Chase Business Advertiser
One more time.
- [15:57]
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- [17:17]
Bloomberg Businessweek Daily Host
You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [17:31]
Emily Chang
Metal platforms alerting thousands of employees that they're being laid off, part of a previously announced restructuring aimed at reducing costs while the company invests heavily in AI. For more, we want to bring in Kurt Wagner, Bloomberg News senior technology reporter. He covers social media. He's out there in the Denver bureau. Kurt, we. We had planned initially to have you on to talk about these metal platforms layoffs, which you've reported a ton on. But we got to start with what's happening when it comes to ipo, a potential IPO from open AI. I'm just curious about the business model here and how it will support a publicly traded company. You report on a lot of social media companies, metal platforms, for example, increasingly turning into an AI company. How are you looking at it?
- [18:12]
Kurt Wagner
I mean, this is, I think, the most obvious and biggest question facing this company. When you are private, you can say, hey, we're going to spend $1.4 trillion on data centers and other AI infrastructure and, you know, kind of get away with it because investors are private investors. You're not, you know, doing that quarterly update, that quarterly analyst call. Once you are publicly traded, that $1.4 trillion you're spending on infrastructure is suddenly weighed against very public numbers around your revenue. Your like that. And so, you know, to date, OpenAI obviously is making the bulk of its money from subscriptions for its AI products. It's dabbling in advertising. But as we've seen from Meta over the last couple of quarters, you know, simply having a massive advertising business doesn't, you know, cocoon you from the criticism of spending aggressively on AI. So I think OpenAI is going to hit this reality at some point very soon where people are going to see that they're spending a lot of time, but the revenue is minuscule in comparison. And we'll have to see how investors ultimately react to that.
- [19:17]
Tim Stannweck
Yeah, Kurt, I'd love for you to talk a little bit more about how the two companies compare and contrast, like how they use AI, because obviously Metta has been around for such a long time, and we all know the Metta business model. We've all known this company for so long, they didn't start as an AI company. OpenAI clearly becoming a company in the age of artificial intelligence.
- [19:42]
Kurt Wagner
Well, what's interesting is the two are trying to kind of get into each other's swim lane here. So in Meta's case, obviously they're an advertising behemoth and have been doing this for more than 20 years. More than 200 billion in revenue last year, almost all of that advertising. But they're, you know, just rolled out their first sort of closed LLM and talking about potentially selling subscriptions to that OpenAI is the opposite. Right. They're making their money right now from, from selling those AI subscriptions and now they're dabbling in advertising. So it's interesting to see these two that are currently playing in different sort of arenas, eyeing one another as competitors as this moves forward. And again, I think ultimately it comes down to the spending. I think in Meta's case, they've proven even though they're spending a lot, they have a $200 billion ad business kind of sitting there that's been chugging along for years. Very consistent, very predictable for the most part. OpenAI doesn't have that yet, so we'll have to see if they can ultimately get there.
- [20:40]
Emily Chang
Yeah, the open air ads that I get are, you know, I don't pay for open for my, my personal chat subscription, so maybe that's why I get the ads. But they're pretty rudimentary at this point and they're just kind of like related to whatever I'm searching for. It's very like, you know, kind of old school Google and the company says that, you know, the ads will never influence the way that it gives you an answer to something. Kurt, I just wanted to talk a little bit about the ads portion of this at Meta Platforms because you hit on this and I was having a conversation with some folks about this, this recently in terms of the way that that Metta Platforms uses AI. You talk about it as this traditional ad business that is really chugging along. But isn't the ad business becoming much more efficient and better because the AI is making our algorithms better and the ad targeting better?
- [21:28]
Kurt Wagner
That is certainly the story Meta has been selling to Wall Street. They say, look, we're spending all this money on AI. We may not be charging for a chatbot yet, we're not charging for an LLM yet, but our ads are getting super efficient. It's not, it's better for the advertiser, they would argue. If you're a small business, for example, you could come in and say, hey, we don't have budget to create a cool video for our product or even maybe take professional photos for our product. But we can use AI to do that now. The targeting is getting better. People are spending more time on Meta because the content recommendations are getting better. So they're scrolling longer, seeing more ads. That's the narrative for Meta right now with AI. They would love to expand that, of course, but today the way that AI is paying back to the company is, as you mentioned, through the ads business.
- [22:18]
Tim Stannweck
And we do want to get to your story. The coverage here about 8,000 job cuts at Meta, how much of it is related to the company's push further into AI and the AI just getting more efficient, that a lot of these software engineers at Metta are no longer needed.
- [22:39]
Kurt Wagner
I think that's the biggest thing. It's, it's partly that some of their job responsibilities are being taken over by AI. It's partly that I think Mark Zuckerberg sees the potential of AI to help people do things they couldn't do before. So perhaps, you know, one or two people creating a brand new app or a brand new product with the assistance of an AI agent that would have previously taken a whole team of people. You know, they've talked about these layoffs as flattening the org structure. So fewer managers, so they get more people actually creating things, more slices, chomps at the apple there. And I think that's what it is. It's a combination of AI taking roles and a combination of AI helping people become better. What they would call ICs individual contributors. I think what is interesting and what we updated our story on this morning is that Zuckerberg posted internally and said that this will be the last company wide layoff for this year. There was a lot of speculation that this is just the first of multiple. Now, as a journalist, I'm, I'm, you know, piecing through that comment, say, okay, company wide layoff this year, perhaps there would be smaller ones, you know, this year perhaps they would do a company wide one at the very beginning of next year. But again, I think he's trying to soothe some concerns right now because you can imagine employees at Meta are very unsettled by the fact that AI seems to be taking up a lot of their jobs.
- [24:02]
Emily Chang
So who else is affected by this? I mean, these are pretty widespread.
- [24:07]
Kurt Wagner
Yeah, these are global. We reported that, you know, product and engineering in this particular round are heavily impacted. I know there's, I think some other groups that, you know, for example, there were Reality Labs layoffs earlier this year. So I do think this is very product engineering heavy. Doesn't mean that it was exclusive to those groups. And again, there won't be company wide one later this year, according to Zuckerberg. I still think it's possible there could be smaller, more targeted sets of layoffs at some point between now and the end of the year.
- [24:39]
Tim Stannweck
Kurt, just very quickly, is it. I know that you don't exactly report on OpenAI, so I'm not going to ask about job prospects there. But is this similar to what we're seeing at other just kind of meta equivalent companies? More layoffs?
- [24:52]
Kurt Wagner
Yeah, I think any tech company that's very heavy on engineering talent is going through this exact same dilemma and calculation. Right now you are seeing these agents in particular these AI agents that can do, if not basic, sometimes mid and even higher level coding at a speed and scale that humans just can't do. And so if you are sitting there, especially if you're a publicly traded company and you need a narrative for Wall street, you need to say, hey, I know we're spending $140 billion on on data centers this year, but look it, we're being responsible in terms of headcount. On the other hand, I think this is a very convenient thing for tech companies to point to and say, look, we are taking this AI things seriously and responsibly.
- [25:37]
Emily Chang
Kurt Wagner from the Bloomberg News Technology team, he's senior reporter there, covers social media, joining us from Denver. Stay with us. More from Bloomberg businessweek Daily Coming up after this.
- [25:52]
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- [28:06]
Bloomberg Businessweek Daily Host
listening to the Bloomberg Businessweek Daily podcast. Catch us live weekday afternoons from 2 to 5pm Eastern. Listen on Apple CarPlay and Auto with the Bloomberg Business app or watch us live on YouTube.
- [28:20]
Tim Stannweck
Well, homeowners looking to tap rising property values without taking on traditional debt have been flocking to so called home equity investment contracts or HE eyes in recent years. He has been spreading rapidly across the US with originations in 485 metro area areas last year, up from just 131 in 2020. And the deals have also attracted backing from investment firms like Fortress Investment Group and Bain Capital as higher interesting rates make refinancing less attractive. But of course, as this market expands, the contracts are also drawing scrutiny from regulators and consumer advocates who argue they can be opaque, costly and difficult for homeowners to fully understand him. So here with Moore is the author of this story, Patrick Clark, Bloomberg News Real Estate Reporter. He joins us from Bloomberg's D.C. bureau. Hi Patrick, let's just start with the basics. What is an hei and why have so many Americans been signing these investment contracts?
- [29:21]
Patrick Clark
Yes, so these are called home equity investments or sometimes shared appreciation products. And the basic idea is you own a home, you sell a piece of your equity to a company, or as it happens, it's actually a company that originates the contract and then flips the paper on, usually to an institutional investor. The idea is I as the homeowner get cash up front and I don't have to make monthly payments like I would on a loan or second mortgage or HELOC type of product. And the amount that I have to pay back, and usually I'm allowed to pay it back whenever I want up to a certain number of years. Some companies make it 10 years, some go all the way to 30 years. But the amount that I pay back is a function of the appreciation of my home during the period of time for which you've owned a slice of my equity or owned up an option or a contract. So as you can see, it starts getting pretty complicated. Yes. Like, like the basic idea, or to try dumbing it down in a slightly different way, is I sell you a share of my home at a discount and so you pay less than it's worth today and you redeem it for more in the future. And I'm willing to do that. Even though I'm giving you quite a lot of money, I'm willing to do that. I think in theory I'm willing to do it because I'm avoiding the monthly payments, I don't have to qualify for a second mortgage. And so there's a lot of short term financial benefits. It's just a trade off. I think then to go to the next point, and you referenced this in introducing these things, one of the questions is, am I as the homeowner, how able am I to really weigh the benefits of this transaction?
- [31:25]
Emily Chang
Yeah, exactly. Even before that, I have questions about the difference between this and maybe a HELOC, for example, or, or what about, you know, even another product that, you know, sometimes you see advertised on, on cable TV in the middle of the day, like a reverse mortgage for, for example. How are those, like, how would a reverse mortgage be different?
- [31:46]
Patrick Clark
So a reverse mortgage is one way that a reverse mortgage is different a couple ways. One is that reverse mortgages are regulated. Two, they're generally for older people. In fact, you have to be a certain age to get a reverse mortgage. And the basic idea in that sense is you're getting cash up front and you're going to pay it back with, you know, with equity in your home over time, which you can do because you're older and as you get older, you have less need for the equity in your home. So it's allowing you to spend your equity gradually over time. I'd say that some of the critics of home equity investments have argued that they are, they're very similar to reverse mortgages, just without the regulatory layer on them. That's what some people have said. Again, I mean, we get into pretty complicated stuff with a home equity line of credit, right? That's, that's a loan. It's just, you're paying more, you know, you're just, you're lining it up in advance and then you're paying interest on it as you, you know, once you start using the capital. But that's a loan and it comes with a monthly payment. And the, you know, one of the really important features of these things, these hees, is that there is Not a monthly payment. There's one monthly payment. It's the last month. Right. And it winds up being a very big payment. But in the interim you're debt free. And so the debt free is maybe not the right way to put it, but in the interim you're not paying for the money, you're paying it all at the end. This is not unlike how corporate borrowers might finance their activities or how an owner of commercial real estate might finance themselves. There's some similarities, this balloon payment. But one of the ways these things get used is to pay down credit card debt. If you're carrying a substantial amount of credit card debt and you're paying a high rate of interest on it, then selling a piece of your home equity and using it to pay down the debt and you're trading a high monthly payment to no monthly payment. There's appeal in that. That's the value proposition. And then the question is, was it worth it in the end? And did you understand how much you were going to pay at the end? Because the amounts get large. I mean these things are usually capped at. They usually have a cap on sort of how much effective interest you're going to pay. That could be. It's usually in the, I guess 16 to 20% range, sometimes less. But the, if you take the midpoint and they take 18% interest and you're going to compound that and you're going to do it on a pretty large dollar amount. If you think about paying 18% a year on $100,000 loan, then you get to five, six, seven years later, the repayment amount is going to be quite large.
- [34:53]
Tim Stannweck
Okay, what's in it for the institutional investors? You name Fortress Bain and then also private credit giant Blue Owl, that they're deploying money into these contracts. Explain what they get out of this.
- [35:09]
Patrick Clark
Yeah, I think so. Blue Owl, I think is the one that's been most aggressive or at least most publicly aggressive. They've made some large commitments to acquire these contracts or this paper from the originators. You know, they're getting to invest in housing at, you know, in a way that brings them higher returns than they would by, you know, funding just regular way mortgages or even, you know, even like non agency mortgages. Right. So they're getting paid a higher rate of return for their capital. And you know, these are structured products. They're very often done in a way that. But it's hard. The downside is capped. Again, if I go back to one of the places I started, which is that I'm Selling you equity in my home at a discount. So if you're buying it at a discount, you're protected quite a lot against what happens in the housing market during the period of time in which you own a slice of my home equity or my home. And so that's the idea. It generates a relatively high rate of return and seems to have a pretty good amount of safety. Now, this becomes a sensitive subject for some of the institutional investors in these products who would say, no, we're being paid fairly for the risk that we're taking. And we don't know where we're putting this money out. We don't know when we're going to get it back. You know, there's no real, there's not really prepayment penalties for the, you know, for the homeowner. So it's, it's, they would say it's not no risk, we're being paid fairly. But, but, but at the end of the day, you know, it's, they, they, they clearly view it as a good risk return. That's why they're funding it.
- [37:01]
Emily Chang
We're speaking with Patrick Clark, Bloomberg News real estate reporter, about his story, along with Prashant Gopal about these home equity investment contracts. Hey, Pat, you spoke, and Prashant actually spoke to some folks for this piece who've, who've bought these products. Tell us just an anecdote about the experience that Marion Hogue had and has had, for example.
- [37:23]
Patrick Clark
Yeah, so this is probably, you know, maybe I should have started here. This Marion Hogue is a woman in Jacksonville, Florida, and who bought a house, a townhome there, actually, for $65,000 in, I believe, 2016, 2015, 2016. And a few years later, she wanted to move. And she had various reasons for wanting to move, but she had credit card debt, and the credit card debt was going to limit her ability to borrow money to buy her next home. And she found one of these things online. And her theory, she's a pretty sophisticated, actually kind of way of thinking about her personal finances. Her theory of this was I'm going to sell, I'm going to take this deal, I'm going to take out $20,000 and I'm going to use that to pay down my credit card debt. And that's going to set me up in a couple years to sell my current house and buy a house I like better. And that's what you wanted to do, but, you know, things didn't go exactly to plan. Covid happened. She's a restaurant server. She lost her job, she couldn't pay it back as quickly as she wanted to. And then as a result or in the meantime, the Florida housing market went bananas and her the value of her home doubled in a very short period of time. And again, remember I said that what you're doing when you fund one of these things is buying some of my home equity. All of a sudden she borrowed 20, she owes 60, and now she doesn't know how to pay it back.
- [38:59]
Emily Chang
Pat Clark, Bloomberg News Real estate reporter
- [39:01]
Bloomberg Businessweek Daily Host
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