FintechMortgage

Inside Figure and Homebridge’s massive bet on blockchain

The merger represents a proof of concept for the technology in mortgage. Will other lenders follow?

Mike Cagney - HW+
Mike Cagney, co-Founder at Figure Technologies

Peter Norden, the CEO of Homebridge Financial Services, has been waiting a long time to do something truly unique in the mortgage business. Decades.

“I’ve always struggled with finding a way to be different than my competition,” Norden, a 43-year veteran of the business, said. “Because the reality is, when you really look at it, all mortgage bankers sell pretty much the same products. And we pretty much sell those products to the same buyers, or put them in the same securities. We really don’t have a lot of differentiation.”

When an investment banker called Norden last year to ask if he wanted to meet up with fintech pioneer Mike Cagney, Norden agreed. 

By that point, Cagney had already raised over $1.2 billion in debt and equity for his blockchain-focused fintech company, Figure Technologies, and generated real buzz around his vision for completely remaking the mortgage process. 

While most traditional lenders were scrambling to hire underwriters, loan officers, processors and keep up with record origination volume, Cagney was spending his days looking for acquisition targets. He wanted to test his theory that blockchain could revolutionize mortgage. And he needed to do it at scale.

In August, Cagney flew to Florida and met Norden at his place in Boca Raton. Cagney, who co-founded digital student lending firm SoFi in 2011, asked Norden if he would be interested in selling the business to Figure, Norden said. “And I said, probably not, I mean that’s not really what my motivation is, but I would love to do some kind of merger where we can help each other. And that’s what we ended up doing.”

After six months of negotiations, they struck a deal. Homebridge, the traditional mortgage lender with wholesale and retail operations based out of a New Jersey office park, would merge with Figure, the bleeding-edge fintech firm based in the heart of San Francisco, most recently valued at $3.2 billion.

“We ended up sitting down and talking, and it just made a whole lot of sense that we could really do this and be in the forefront of the mortgage,” Norden said. “It’s great for Homebridge. And for Figure it’s a platform to be able to prove that blockchain technology works. And it actually gives them access to a much larger customer base, because of the volume of loans that we do.”

Cagney said he had a lot of targets to choose from. 

“When it became known that we were looking at various mortgage companies, a lot of folks came to us, so we got a chance to look at a lot of different businesses,” he told HousingWire in an interview. “What was unique about Homebridge was a combination of the management and what they’ve been able to accomplish, and the reputation of the organization, which I think is outstanding.

“It’s a business with scale but wasn’t overly investing in technology. We want to be able to bring technology in a way to provide pretty significant disruption to those operating characteristics of the business… and downstream benefits. A couple things that are going to happen for Homebridge out of this are, one: we’re going to be able to lean in and bring a whole suite of products that the loan officers haven’t historically had access to. And ultimately the business has to scale to do some of the things that we’re trying to do on the technology side, the process of origination, capital markets. So there’s a lot of upside around that.”

Cross-selling new products

In the beginning, life at Homebridge, which originated about $26 billion in mortgages in 2020, won’t look much different for the hundreds of LOs, processors and other staffers at the lender. For starters, the deal likely won’t receive regulatory approval for four to nine months.

In the interim, Homebridge will be rolling out origination products that it hasn’t yet had on its rate sheet. HELOCs, which is a bread-and-butter item for Figure, will be the notable addition. They’re also planning to offer unsecured consumer loans for the wholesale and retail salesforce. 

“And we have to figure out the logistics of that, because for the most part, we’re a mortgage banker,” Norden said. “My lines of credit are really all geared towards mortgages, so when you start dealing with other things, we’ll probably end up just handing over the leads over to Figure for Figure to actually process and close.”

Logistically, it’s going to take some time for the two companies to integrate systems. Norden estimated that it would take about a year to originate the new products in Homebridge’s name and close them. 

The ability to cross-sell different products to borrowers is a key part of the merger, the companies said. 

“From when we originate a mortgage, now we have the capability to possibly do a few more,” Norden said. “We can see that there’s student debt on the credit report, we can offer them a student loan refinance, if they need to do $25,000 worth of repairs on that house we can do an unsecured consumer loan for them. If they need to have a piggyback loan – a no PMI piggyback loan – we can do those because Figure’s doing all those, as well as doing some pretty creative jumbo product, which they’re delivering using Blockchain technology to certain institutions.”

Conversely, while Figure is originating HELOCs, they can look at the consumer profile and have Homebridge offer the borrower a new mortgage.

If this is starting to sound more like a depository bank than a traditional nonbank, you’re onto something. 

“So it basically becomes a full consumer lending unit that really can cover the gamut, with the intent to expand,” Norden said. “I think Mike has every intention of expanding it into every consumer finance avenue that is available over time. Frankly, Homebridge is going to really become a new type of fintech.”

The merger won’t result in any layoffs. The executive team at Homebridge will also remain in place. Homebridge received a large amount of Figure’s stock in the deal, though details of the pending deal were not disclosed.

Blockchain’s potential

For an industry that obsessively talks about needing technology to bring down costs and improve consumer experiences, it’s perhaps surprising that there aren’t major mortgage players rolling out blockchain technology at scale.

Today, the lifecycle of a mortgage loan is mostly a manual process, with each player putting a bit of information into unintegrated systems, and handing the quality control individually. That’s from application to approval, to title and appraisal, to closing, to the loan being sold on the secondary market, and then serviced. 

Blockchain technology allows Figure — or any lender that adopts the technology — to record, share and exchange the data about the loan without the need for a manual process. It’s immutable, meaning it can’t be changed, and the process is far more efficient and seamless than the paper-heavy process that exists today.

To date, none of the biggest companies in mortgage have taken steps to replace their existing processes with blockchain, according to Debbie Hoffman, a professor at the University of Albany Law School, who teaches a course on blockchain and cryptocurrency.

“Companies are not currently using blockchain technology,” said Hoffman, who also founded a blockchain advisory firm. “So in order for them to take advantage of it, they have to be open and willing to shift to use the technology and share it among the parties. So what I’ve always said is you need a few drivers to make that happen — drivers like bigger mortgage lenders… but it could be like Fannie or Freddie who say, ‘Hey we’re going to use blockchain and you have to adapt to our ecosystem and use the information that we’re going to use.’ It’s really difficult because you can’t use it in a vacuum, you can’t be the only company that’s going to use it.”

Cagney says Figure is already using blockchain technology “extensively” with non-agency products.

“So obviously a logical first application is for high-balanced jumbo loans that aren’t going to the agencies, leveraging blockchain to deliver those loans faster and more efficiently,” he told HousingWire. 

Currently, there is no timeline to originate agency product, Cagney said.

One of Figure and Homebridge’s key challenges in making blockchain standard in mortgage banking is buy-in from other firms.

“Everybody wants to see somebody else do it,” Hoffman said. “There’s not a lot of leaders in our industry saying yes, we want to use blockchain, we’re going to risk it. There are a few that are embracing technology and change and want a differentiating factor, but I think the industry is generally more hesitant. In the past year-and-a-half, they’re just trying to keep up with the volume so they haven’t really had time to focus on innovation. So then the question is, when we hit a slower time, is that the time for innovation? Or are they going to say, ‘We don’t have the money now to pay for innovation.’” 

Earlier this month, Figure struck a deal with loan servicing software developer Sagent, which will power Figure’s mortgage servicing process through blockchain.

“We’ll also begin bringing scale mortgage assets onto the Provenance Blockchain to reduce mortgage industry costs by up to 100 basis points from origination through securitization,” Cagney said.

Figure and Homebridge are betting that in a few years, blockchain will create efficiencies that allow them to grow far beyond the top-30ish mortgage lender level they’re currently operating at. 

Long term, the blockchain technology would allow Homebridge and Figure to handle mortgage transactions through cryptocurrencies instantly. Instead of dollars being wired into escrow accounts, you could use a token that has value, say 30 Bitcoins, for example, and have instant liquidity from player to player. 

Though the industry at-large has been slow to embrace the technology, Hoffman said Figure and Homebridge might shift the paradigm.

“In the past year, mortgage lenders have gotten really comfortable with the concept of a digital mortgage and and remote notarization and that opens up the door to saying, ‘Okay, it doesn’t have to be on paper,'” she said. “We’re more comfortable with digital than we were a year-and-a-half ago. It’s really going to make it go a lot faster once the value is seen by the others watching Figure and Homebridge.”

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