Digital Mortgages Are Quickly Becoming The Standard

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To investors,

We have talked at length in previous letters about the two investment theses that I have: (1) humans will trust software over other humans to store their wealth and (2) every stock, bond, currency, and commodity will be digitized. As part of the second thesis, we made a large investment in Figure Technologies — a company that issues “digital mortgages,” which unlock significant advantages in transaction settlement times, transaction costs, and asset ratings from rating agencies.

The product that has been built by Figure is a perfect example of the value that can be created when you digitize assets in a thoughtful, compliant manner. Here is a simplified way of describing what they do:

  • Mortgage transactions have a borrower and a lender. Between those two parties, there are approximately 5-7 middlemen who charge a total of 7-8% fees per transaction. This process is fairly slow and fragmented.

  • Figure has “automated” the mortgage process by creating software which removes the need for each middleman. The automation of this process also decreases costs to ~5% transaction fees. Customers can now apply for a HELOC and be told within minutes whether they qualify or not and then receive the funds within 5 days.

The automation of the mortgage transaction was previously not possible because each mortgage was either analog (physical paper) or electronic (CUSIPs). Those technologies are not compatible with “automation software,” but the advent of a digital mortgage changed all of that. Since launch, Figure has grown significantly.

The latest public numbers are that Figure is issuing $85 million in loan originations per month. That puts them on more than $1 billion in annualized originations. Not bad for a company that is only ~ 18 months old. But the origination of the mortgages is only part of the story. In fact, it is the least exciting part of the Figure story.

Figure has also built a blockchain-based transaction settlement layer (Provenance) which closely mimics the Depository & Trust Corporation (DTCC). In the traditional financial system, the DTCC settles more than $2 quadrillion of transactions per year. Obviously, that is a lot of transactions!

The Provenance blockchain empowers financial firms to benefit from same day settlement times (DTCC is 2 or 3 days), lower costs, and potentially higher ratings from the rating agencies (see Provenance’s white paper on this here). While many people have promised similar benefits, no one has been able to (1) build the product, (2) get it launched, (3) put material volume through the product, and (4) entice large financial firms to begin moving their assets over.

Figure has successfully done all four of these things. But they aren’t alone. The company announced yesterday that Caliber Home Loans, one of the largest mortgage lenders in the country, has also started to originate, service, and finance mortgages on the Provenance blockchain. Pretty incredible.

Provenance now has one of the largest mortgage originators and one of the fastest growing originators using the technology. There are more on the way. It wouldn’t surprise me if the industry goes from 100% analog and electronic to more than 50% of new issuance being done digitally within the next 3-5 years. With more than $9 trillion in outstanding mortgages for US households and the top 3 mortgage originators each doing more than $50 billion per year, it is a massive market opportunity.

The best venture capital investments have a low probability of working, but unbelievably high return potential. The power laws of venture investing reward high risk, high return. And there are few bigger opportunities than disrupting how quadrillions of dollars of asset transactions are settled.

Eventually every stock, bond, currency, and commodity will be digitized. I’m just surprised at how fast it is happening.

BONUS: Watch this rap battle music video titled: Hamilton vs. Satoshi … pretty cool to see the way that people are bringing awareness to the industry :)


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Sven Henrich is the Founder & Lead Market Strategist at NorthmanTrader. He is one of the most well versed people I’ve spoken to about the global economy and where we are headed. This is a fascinating conversation and I highly recommend listening!

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