How Blend plans to survive a shrinking mortgage market 

Company is committed to its long-term vision – and it won’t cut prices

Nima Ghamsari, CEO and founder of mortgage fintech Blend Labs.

Publicly traded mortgage tech company Blend Labs isn’t changing its strategy to survive a shrinking mortgage market, even though a drop in originations is sapping its revenue stream and forcing it to trim its workforce. 

The Nima Ghamsari-led fintech is doubling down on its long-term strategy to offer a complete digital origination journey for clients. Blend won’t abandon its usage-based fee revenue model. And it doesn’t plan to cut prices. 

“While we are conscious of aligning our costs with market realities, we are still committed to the long-term vision for the company,” Tim Mayopoulos, president of Blend and a former CEO of Fannie Mae, told HousingWire in an interview this week. 

For investors, a warning: it means that profitability will take some time to achieve. 

To contain ballooning costs, Blend announced a decrease of 10% in its workforce this week, eliminating about 200 positions. Company executives say this will yield approximately $35.4 million per year in savings.  

“The reason we’re doing this is that, obviously, we expect mortgage volumes to decline significantly during the course of the year,” the executive said. “The refinance volume, in particular, is expected to be down 60% to 70% from last year’s volumes.”

Blend is reducing general and administrative expenses in human resources, finance, and legal, but decided not to cut costs related to engineering and product development. 

The main cost reduction target is Title365, a business acquired from Mr. Cooper Group for $422 million in March 2021. The title arm, basically driven by refinancing, will have most of the job cuts (the company did not disclose the total number). 

Blend says it’s still long on title, even amid industry grumblings that it overpaid for Title365. 

“The way we think about mortgage origination is that the entire process should be data-driven and digitized,” Mayopoulos said. “That’s why we’ve made a strategic decision to invest in a title agency, and we believe that the industrial rationale for this deal continues to be strong.”

Mayopoulos said Blend did not acquire Title365 to be in the legacy title business. The idea is to get Blend’s software customers into the title platform, which will happen with Mr. Cooper around mid-year.  

Blend, whose white-label technology powers mortgage applications on the websites of major lenders such as Wells Fargo and U.S. Bank, is doubling down on the long-term plan of offering a digital origination journey, not only for mortgage loans but also for other financial products. 

“We fully expect that our presence in the mortgage market will continue to grow, but it will also grow in terms of the activities that lenders will be able to do on Blend, including title, escrow, settlement, closing,” Mayopoulos said. 

He added: “The other element is that we have expanded beyond mortgages, into consumer banking more broadly, such as home equity lending, personal loans, auto loans, credit cards. Over time, we expect to diversify our revenue streams.”

In 2021, Blend processed more than 1.8 million transactions for mortgage lenders, representing 38% growth from the previous year. Meanwhile, consumer banking transactions totaled just 300,000 last year, from 87,000 in 2020, according to the company’s most recent earnings statement. 

Blend claims it grew its mortgage market share from 10% in 2020 to 15% in 2021. Even in the tumultuous conditions in 2022, it expects to increase market share to 20%. According to Mayopoulos, the fintech will get there without cutting prices but by adding value for its clients.  The fintech operates a usage-based billing model, so its clients pay more as they use the platform more. The company also does not get paid until its client gets paid by customers. 

“We recognize that that introduces perhaps more volatility and unpredictability in our revenue,” Mayopoulos said. “But asking the customer to make a big upfront commitment just creates a point of friction, especially in a market that is unpredictable in terms of how much volume there’s going to be.”

Blend had $547 million in cash as of December 31, 2021, and does not plan to raise capital, executives told HousingWire. The company has never been profitable – Blend lost $169.1 million in 2021, compared to $74.6 million in 2020 during the refi-boom.

“I wouldn’t say that getting to profitability is irrelevant to us. But it’s not our highest priority,” Mayopoulos said. “The objective is to make sure that we manage our expenses appropriately, in light of our revenues and market realities. But, if getting to profitability means that we had to stop investing in creating great new technologies valuable to our customers, we don’t think that would be the right answer.”

Now, Blend needs to convince its investors: the stock that debuted in July 2021 at $20 a share closed at $4.58 on April 20. 

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