Figure Technologies is as much a home equity company as it is a blockchain lending technology company.
Since it was founded last year by former SoFi CEO Mike Cagney, the company has raised more than $120 million in capital, and it is only in its second year of operating. In its first year of business, the company entered the home equity lending space when it rolled out its signature product, the Figure Home Equity Line, which is a hybrid between a traditional home equity loan and a HELOC that allows homeowners to borrow from their equity.
Then the company targeted the reverse mortgage market, unveiling a new program that is touted as an alternative to reverse mortgages. Called Figure Home Lease Back, the program sees the company buy a property outright from a homeowner, who then rents the house back from Figure for as long as they want to.
While at the LendIt Fintech conference in San Francisco this week, I sat down with TJ Milani, Figure’s VP of finance and strategy, and Peter Silberstein, senior director of capital markets, to discuss the company's strategy behind its sale-leaseback product and the home equity market.
Q: By billing your sale-leaseback product as an alternative to reverse mortgages, have you found much traction with the Baby Boomer market?
Milani: “It’s still a relatively new product. We released in November last year and we’ve started with just a few properties, focusing on Texas. It works for Baby Boomers and those who are kind of beyond baby booming, and it works for people who are kind of Gen X, or are kind of approaching early retirement and in their late 40s, early 50s.
The problem with reverse mortgages is that if you’re not 62-and-a-half, you can’t get one, so that’s a big target market for this. But also, say you’re 50 and you just want to sell your home, take the equity value of your home and still live there, that’s another market for this.”
Q: Why did the company opt to target seniors who might consider a reverse mortgage?
Milani: “We always look at financial products and ask, ‘What is the problem in the market?’ We looked at home equity and found a problem. We looked at reverse mortgages and looked at the CFPB and saw that everyone has huge complaints about reverse mortgages. The fees are enormous, it’s difficult to understand, or they are targeted to seniors who don’t really get it.
So, we said, ‘OK, there has to be a better mousetrap.’ What do they do in the commercial space? Commercial sale lease-backs with REITs and buy-rent backs are very common right now, so why don’t they exist in the equity market for residential? We didn’t have a good answer as to why it doesn’t exist, so we said, ‘OK, so let’s create a residential sale lease-back.’”
Silberstein: “With a reverse mortgage, you get about 40% loan-to-value, with this you’re releasing the majority, if not all of, your equity, so it’s a lot more attractive from an equity release perspective. The other big thing is that this isn’t a loan at all, you’re selling us your property, so Figure now bears the burden of insurance, taxes, maintenance, and any HOA fees.”
Q: Is Figure partnering with reverse lenders at all to take their turndowns?
Silberstein: “We’re talking to a number of potential partners about marketing this product to their existing reverse mortgage book. This would also be another way to prevent cash-out refi for holders of MSR portfolios. This, as well as our home equity line product, as they think about, ‘How do I mitigate turnover in that portfolio?’”
Q: Why does Figure see value in equity release products when fewer Americans are tapping equity?
Milani: “People have more and more equity in their home and at the same time, HELOCs and reverse mortgages are all declining in volume. People have equity in their home and they want to tap it. Reverse mortgages are, in our opinion, super complicated and they just get more complicated, so there needs to be a better product for this. If a reverse mortgage doesn’t work, or a 30-day HELOC doesn’t work, we’re going to create our own products that are better for consumers.”