Figure Technology Solutions has launched Figure Connect, its blockchain-based marketplace for private credit. Outside of the qualified mortgage sector, most loan purchase agreements (LPAs) are bespoke, making them illiquid. Figure’s is promoting the use of standardized sales terms and documentation to make the market more liquid.
Taking that a step further, the marketplace enables investors to commit to fund loan originators in advance of their lending.
Figure’s Chairman and founder Mike Cagney likes to use the term “replace trust with truth”. With conventional loans that don’t have government sponsors, typically loans would be subject to expensive third party reviews every time they are sold or pledged. Using blockchain for origination, there’s far greater transparency and immutability, ultimately leading to certainty about what the loan involves. That means there may be one off third party reviews, but they don’t need to be done repeatedly.
The combination of the shared origination platform, which standardizes the origination, blockchain and standardized loan purchase agreements should help to create a far more liquid market via Figure Connect. The company says that it has more than 90 partners using its origination platform for home equity lines of credit (HELOCs), who have logged more than $10 billion in loans. Figure Connect is targeting a broader range of private credit beyond HELOCs.
So far it has signed up two originators – The Loan Store and Movement Mortgage – and two loan buyers, Bayview Asset Management and Saluda Grade.
However, Figure Connect is a stepping stone.
Plans for a TBA-style market
Fannie Mae or Freddie Mac mortgages are sold in pools in advance. The market is called TBA because the buyers only know the precise contents of the pool two days later. Buyers are willing to commit in a seemingly blind manner because of the standardization of the mortgages in the pool. As we noted several months ago, New York Fed research has shown that this improves liquidity and effectively lowers mortgage rates. That’s partly due to standardization and partly the guarantee.
Figure plans to create a TBA-style market. Cagney wrote about plans later this year for a “permanent capital vehicle that can buy loans from the marketplace, package those loans into a ‘guaranteed’ pass through and sell to investors. Figure is working with capital partners to stand up this vehicle to facilitate a TBA market for lenders and investors, and we are also working with sell-side banks that can make markets in both the TBA and the pass-throughs.”
Meanwhile, Cagney has stepped up to become Chairman of Figure Technology Services, which is preparing for an IPO. He has relinquished his CEO role andnd taken on the CEO role at Figure Markets, a new spinoff that is both a crypto and securities exchange that is due to launch around the end of the month.
