Thinking outside the box

Kaiyoorawongs, who operates in the tech space and was also a Bill and Melinda Gates education fellow through her research on education policy, said that she thinks what’s happening in the technology industry is technology is much more robustly used for those that are earning above the median.  

“I think people who will easily say, ‘yeah, I’ll pay $12 a month to subscribe,’ that’s who the tech is built for. It’s not built for the person earning the median wage and below,” she said. “As a result, there is racial implications to that.”

Just looking at lender websites highlights the divide in helping people who don’t qualify for a home right now. ¬¬When a consumer goes to apple for a mortgage or refinance, they’re typically met with one of two options, they’re rejected or accepted. Kaiyoorawongs argues that this “binary decision has to removed.”

It could be a yes or no, she said, but it also needs to have a maybe. And to take it a step further, she stated that the system needs to explain what that maybe is dependent on and offer services that can meet that maybe. 

“Everyone’s trying to go after the apples and the first branches, and everyone is forgetting about all the apples up the entire tree” Kaiyoorawongs said, emphasizing that the industry needs to move beyond the small percentage of mortgage ready borrowers. 

Kaiyoorawongs’ own company, LoanSense, is one of the companies out there that is trying to bridge this gap. LoanSense partners with lenders to ensure that no mortgage applicant is denied without a plan.

LoanSense isn’t alone in the fight to bring more inclusivity to the financial industry. While she is attacking the problem by looking at consumer debt, other tech companies are challenging the status quo by looking at housing supply or the mortgage process.  

Here are different ways companies are harnessing tech disruption in areas that serve the non-traditional consumer. 

The outliers 

Looking at Fannie Mae and Freddie Mac as an example, the enterprises offer mortgage products that require as little as 3% down. Without even going into the specific requirements, the products state that borrowers have to have a credit score. That alone is a barrier to millions of people. And then, once you dive deeper and add in the amount of debt a person has or how much money they make, many more people are taken out of the homeownership equation. 

Any person who falls out of these standard methods is an outlier. 

The companies innovating in this area aren’t trying to fit square consumers into a round hole. Instead, they’re creating more and more pathways – or shapes to stick with the analogy – for how people can build sustainable wealth. They’re questioning the definition of tech disruption and innovation itself. 

Matt Holden founded his Denver-based company Black Opal to address one of these outlier groups – expatriates. Each year 14 million people come to the U.S. on various visas, arriving in a country that’s based on credit history, which they have none of. 

“Moving to America is an honor, it’s a privilege. But you get here and the systems are so broken, that it is actually a hardship for anybody who has come here as an immigrant, or on a nonimmigrant Visa,” said Holden, who moved to the U.S. from Australia in 2013. 

After wiring hundreds of thousands of dollars to the U.S., Holden was shocked to be rejected for a credit card when he first moved to America. “I had to put down another $1,000 for what they call a secured credit card,” said Holden. “How do you run a business on $1,000?”

Holden explained Black Opal has a card that is so “fundamentally different.” For credit history, the company uses the credit rating of the consumer’s home country. So, in Holden’s case, as an Australian, Black Opal uses his Australian credit rating, makes it an American credit score and uses that to underwrite and issue a credit card. They also give the consumer the credit card 90 days before they come to America, so they can build their credit score much faster.

Focusing on the 750,000 professionals who are in America on a visa, Holden is trying to upend the “good ole American story” that says you have to go through an arduous and laborious journey in order to make it in America. 

He recalls attending a conference in Colorado for bankers and listening to the speaker talk about her journey as an immigrant, coming to America with only $500 in her pocket. While he isn’t discrediting her struggle, he is pushing back on the reason her journey had to be so hard in the first place. 

“I don’t know why she had to go through so much pain. They’ve come to the greatest country in the world, but they still are not welcome in the banking institutions,” he said. 

This is why Black Opal focuses on professionals with visas and tries to help them get started in America. 

While COVID did pump the brakes on Black Opal for about six months, the card is launching mid 2021, and so far, the company has raised over $2 million from private investors.

Tech disruption in the home-buying process 

America is famous for its 30-year mortgage. Home shoppers buy a house, and unless you opt to pay it off early, you have 360 months to slowly pay down your debt. But what about those people who don’t want to be stuck with a mortgage for 30 years?

Companies like Haus are using tech disruption to shake up the standard way to buy a home. According to Haus’ website, it offers a co-investing model instead of a typical bank loan. 

“The Haus partnership was designed to create a flexible approach to homeownership,” Haus CEO Jonathan McNulty said. “Each homeowner has their own priorities and goals, and we felt like a solution that created flexibility and affordability, combined with removing the leveraged risk for consumers was missing.”

Unlike a traditional lender, consumers aren’t borrowing money or taking on debt when they partner with Haus. While the consumer’s name is still the only one on the title, Haus shares in the cost of owning a home, as well as its appreciation and depreciation if they sell.

One of the most notable parts of this model is the flexible equity option. Homeowners can buy more equity in the house anytime and sell their equity back to Haus to get cash when they need it. 

“Traditional mortgages have not changed much since originally created,” McNulty said. “While for many people, traditional mortgages can work very well, there are those who struggle with the rigidity of the structure, and the additional risk associated with it. That is why new options, like the Haus partnership, can create a much more manageable experience for people.” 

As much as people may wish, life rarely goes as planned. So when there is a job change, a sick relative or better school district that requires a move, it’s unlikely that it will coincide with housing market behaviour. This model changes that.   

“The Haus partnership allows homeowners to maintain their flexibility through an unlevered and affordable arrangement, while attaining the long-term stability of ownership.” McNulty said. 

The role of tech disruption 

Seattle-based Blokable takes the past examples of tech disruption to the next level by disrupting multiple levels of the entire housing supply ecosystem. Adding a physical element back into the tech discussion, Blokable not only taps into the power of technology, but it also is disrupting the process by focusing on one of the most important commodities in the real estate industry – dirt. 

Blokable made history at the end of last year, announcing the first-ever Vertically Integrated Modular (VIM) housing development, Phoenix Rising. 

When looking solely at the development, Phoenix Rising is a community of five studio and seven 1-bedroom apartments, which are reserved for individuals earning 30% of the Area Median Income. Blokable then goes a step beyond simply getting an affordable home and strives for sustainability. 

According to Blokable, the facility will cost 60% less for heating and cooling, and 30% less for overall utilities, and meets strict energy and environmental metrics that are becoming the standard for new construction in many states and municipalities. 

“As an owner, if you’re thinking about how to create the maximum amount of value, the operations of something are very important. So, the cost of operations, the cost of maintenance, the cost of insurance, all those things are factored into the owner’s perspective. It all comes together in terms of the overall finances of something,” Aaron Holm, who with Nelson Del Rio, is co-founder and co-CEO of Blokable.

Blokable delivers on these metrics by developing a prefabricated building system that is standardized and repeatable while offering endless site variation. 

But the finished development is only one part of the whole process in what Holm calls correctly positioning incentives to create a real role for innovation. 

For both Holm and Del Rio, while they come from different backgrounds professionally, they found common ground over their personal upbringings. Coming from a low income, single-mother household, Holm said he learned the importance of housing and the importance of housing as a baseline for education, health and ultimately, opportunity. 

Holm added that they both saw that “to really get underneath the problems in the housing market, it was going to take a completely vertically integrated approach.

“When we started Blokable, it was very much to go after the core problem and to really rethink how the housing market was working because it had obviously hit a point where some of the fundamental components of it weren’t working,” Holm said.  

Those fundamentals in this situation are the factors and/or people who are most incentivized in the housing supply chain and repositioning that incentive to prioritize innovation instead of commoditization. The way Holm put it is they wanted to create a company that by the way that it’s structured and by the activities that it does, it cannot be disintermediated and cannot be commodified.

But what does this mean when it comes to affordable housing? 

To Holm, the purpose of innovation and tech disruption in housing is to drive down costs, and by driving down costs, you create equity, and equity in real estate is the ultimate currency. 

Blokable upends the traditional housing supply chain by acting as the builder and developer. 

This, according to Blokable, allows them to own and streamlines the entire development process, eliminates unnecessary costs, and de-risks every project, offering both market rate and not-for-profit landowners a turnkey, design-build service for a set price and guaranteed delivery. From design, planning, financing, and permitting, to almost-complete manufacturing, delivery, on-site construction, and ongoing operational support, Blokable oversees it all, which all adds up to be the first vertically integrated development platform.

“Because we are vertically integrated, we have a different perspective on the value created by the buildings we develop and own,” Holm said when Blokable unveiled Phoenix Rising in December. 

“We believe affordability and energy efficiency go hand in hand, so part of expanding housing access is pushing the industry toward a performance basis for environmental regulations. We envision our building system as a platform for future energy innovations that could decarbonize the built environment and enhance climate resilience,” he said.

Why so innovative?

There is a growing number of companies who are taking the data and research learned in the tech space and applying it to disrupt the issues that have long plagued the financial industry. 

They’re looking at topics like affordable housing, supply constraints, access to credit, student debt and more and finding real solutions that address the problem at its core to create change. 

Tech disruption isn’t without its critics though. And in many ways, Holm’s thoughts on the pushback they face at Blokable could apply to any company going against the grain. 

For a company like Blokable, which is disrupting multiple levels, “there’s pushback across the board because you’re threatening the status quo,” said Holm. “It just works in a different way.

“We don’t go through the traditional structure, and so there’s a lot of folks who don’t benefit from that and so they’ll fight against it,” said Holm. “But then, there’s also a lot of folks who were really supportive and see where we’re going and want to partner with it. Both sides are there, but we know what we’re in for, so we’re not too naive as to what we’re doing.”