Mike Cagney didn’t expect to be releasing a cryptocurrency-backed 30-year fixed-rate mortgage product so soon. The plan was for Figure Technologies to launch such a product only after completing the merger with multichannel mortgage lender Homebridge Financial Services.
But Cagney can’t wait: regulatory approval on the Homebridge deal hasn’t occurred yet, and frankly, demand for crypto mortgages is too strong. He’s launching in early April.
“I’ve just been blown away by how many people are in a situation where they have significant crypto assets, and their lenders just won’t take it into consideration,” Cagney, co-founder and CEO of blockchain-built Figure, told HousingWire. “Crypto is some of the best collateral because it’s not only liquid, but liquid 24 hours a day.”
The fintech is gearing up to release a 30-year fixed rate mortgage for borrowers to use bitcoin and/or ether as collateral. Two other companies have announced the product since December, including Miami-based digital lender Milo and Toronto-based cryptocurrency lending platform Ledn.
Figure’s crypto-backed mortgage will have a 100% loan-to-value ratio and monthly collateral adjustments: if cryptocurrency prices drop, the client needs to deposit more collateral or pay down the loan balance to get the ratio back to 100%. Otherwise, the company will liquidate the collateral, Cagney said.
However, if the cryptocurrency price increases to a 125% loan to value ratio, the lender will release the excess back to the borrower. Figure will not rehypothecate the collateral – in other words: use it for their own purposes – and will have the digital asset platform Anchorage as a custodian of the cryptocurrencies.
Figure will originate crypto-backed mortgages of up to $20 million, at a fixed interest rate of 5.99%. “For us to get paid, we need to be at that 5.99% rate. As the market gets comfortable with the product, the rate will look like the prime jumbo,” Cagney said. (The prime jumbo rate is currently at around 5%.)
Cagney said it is realistic to think Figure will reach between $500 million to $1 billion in origination volume in 2022.
Figure will use its own cash to originate up to $100 million. And while Figure has no plans to raise capital for the product, it can tap other sources of funding if needed.
Per Crunchbase, the company has raised $1.6 billion in venture capital, including a $200 million Series D round in May with 10T Holdings and Morgan Creek Digital, as well as a $100 million funding facility from JPMorgan Chase in January 2021.
Cagney has talked to investors to assess their appetite for crypto-backed mortgages in the secondary market, mainly insurance companies and banks.
“There is a lot of interest in it, because it has a higher coupon than the prime jumbo, but it is new, and so people want to get their arms around it,” he said.
Figure, which was founded in 2018, claims its blockchain-built underwriting system streamlines the origination process, locking the loan in five minutes and funding it over the course of five days – outside appraisal and title.
Cagney, who founded and led student loan lender SoFi, has been outspoken about his goal to test the blockchain platform at scale, which he’ll be able to do once the deal for Homebridge is approved.
“Probably the most significant issue was we had this grand thesis that we could save 90 basis points of expense to originate securitized loans on a blockchain,” Cagney told HousingWire in an interview last May. “We had a blockchain architecture that we felt was scalable, secure, and did all the things the financial ecosystem needed to do. And we added a way to onboard and offboard currency out of the blockchain.
“What we didn’t have was a bank and originator ready to embrace the blockchain from an asset standpoint. And so nobody wanted to be a first mover to originate a loan on blockchain. And there are a lot of proof of concepts out there where people were doing it in parallel, but the loan still existed off chain and we didn’t think that was really an effective proof of concept.”
Although interest in blockchain is gaining steam in mortgage, it is still very much a nascent technology. A recent Fannie Mae survey found that only 25% of lenders said they were familiar with the technology and its possible applications in the mortgage business. A majority of lenders (68%) said they have not yet looked into the technology. Of the 20% of lenders that have looked into blockchain, 41% said they plan to adopt it within four years.