Alternative investment firm Saluda Grade doesn’t see the interest rate environment or the current signals of consumer financial stress taking the shine off home equity assets anytime soon.
“What we’re focused on is 75% of homeowners today with a mortgage have a rate that is still out of the money — and that’s material,” Blake Eger, Saluda Grade’s head of private credit and senior portfolio manager, said in an interview with HousingWire. “In the near term, I don’t see any material changes in rates that would impact borrower behavior in some of these asset classes.”
Eger added that the average rate held by today’s homeowner is about 4.5%, but the current rate is near 6.5%. With no incentive to refinance their homes, most of these customers are tapping into their home equity — an asset class that attracts investors like Saluda Grade.
“There’s a tremendous amount of equity accumulated in the system today, in particular on the residential side. It’s almost $35 trillion of home equity in single-family residential housing in the U.S.. That’s a giant asset class. We want to finance that equity, the homeowner who has that equity,” Eger said.
On top of that, there’s a supply shortage of about 3.5 million homes, household formations continue to increase and housing stock across the country is aging rapidly, she added.
Eger said that signals of consumer stress are not apparent in the company’s portfolio. Saluda has a total portfolio of about $4 billion, the majority being residential assets. But it also has fixed-income and growth equity businesses. With the latter, it takes non-controlling, minority stakes in originators of alternative housing assets and fintech platforms.
“We’ve been comfortable with the level of delinquencies that we’re seeing — these assets are performing well,” Eger said. “That said, we’re certainly aware of the headlines, and we’ve seen broader delinquencies certainly pick up in consumer loans. It’s something we keep a close eye on.”
Saluda forecasts a market of $150 billion in second-lien production in 2026. Eger said there’s no shortage of assets out there; it’s a question of finding the right home for them.
Regarding parallels between some of these assets and those created prior to the financial crisis of the late 2000s, Eger said Saluda’s weighted average FICO score is 750 across second liens and residential transition loans (RTLs), meaning that these are prime borrowers.
“Home equity agreements are a different product, and they are designed for someone who cannot access a traditional mortgage, so by nature they’re likely to have a lower FICO score,” Eger said. “Ideally, this is used as a credit curing product, and this is a way for a homeowner to use their most valuable asset to pay down expensive debt that’s weighing on their own personal balance sheet.”
Eger said mortgage credit availability is historically tight — nearing 2009 levels — leaving most borrowers without agency options. Private credit is filling this necessary void rather than driving up rates. Subprime lending is significantly smaller and much better underwritten today compared to the pre-crisis era, she added.
Private credit
Eger knows about subprime. She began her career at Bear Stearns structuring subprime mortgage-backed securities (MBS) prior to the crisis, then moved to JP Morgan, Bank of America/Merrill Lynch (trading non-agency RMBS), Structured Portfolio Management, Redwood Trust and Paloma Partners before joining Saluda Grade about four and a half years ago.
Saluda Grade, founded in 2019, is broadening its asset-backed credit strategy beyond its traditional residential focus to expand into both commercial and non-housing sectors.
Following its acquisition of Hillcrest Finance in mid-2025, the firm is targeting commercial mortgages, specifically commercial bridge loans. With the recent hire of co-chief investment officer Patrick Lo, formerly of Waterfall Asset Management, Saluda is exploring other opportunities such as home improvement, manufactured housing and solar loans.
Saluda prioritizes asset-backed finance (ABF) — in which loans are secured by specific collateral rather than just a borrower’s creditworthiness — over corporate direct lending because it offers better diversification through thousands of smaller, asset-backed loans with contractual cash flows, Eger said.
This “Private Credit 2.0” space has grown significantly as regulatory changes like Dodd-Frank forced banks to retreat, allowing private credit funds to step in and provide broader investor access. Looking ahead, Saluda expects upcoming Basel III regulations to have minimal impact on its specific alternative asset strategies.
“The key theme that we’re continuing to hear from allocators over and over again is we have maybe been too focused on one form of private credit,” Eger said. “With today’s new definition of private credit that now includes ABF, we’re looking to diversify our exposure, and prudently it makes sense.”
Regarding recent stress in the broader private credit market, Eger said the company is making sure it has ”strong third-party vendors” that look at credit compliance and valuation on certain products.
“There’s always risks, and if nothing else, putting more eyes on this and having it come to the forefront makes everybody in the space a more prudent investor,” she said.
