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Figure Introduces Figure Connect, a Blockchain-Based Marketplace for Private Lending – Ledger Insights
Figure Technological solutions has launched Figure Connect, its blockchain-based marketplace for private credit. Outside of the qualified mortgage industry, most loan purchase agreements (LPAs) are bespoke, making them illiquid. Figure’s promotes the use of standardized sales terms and documentation to make the market more liquid.
Going a step further, the market allows investors to commit to financing loan originators prior to their lending.
Figure president and founder Mike Cagney likes to use the phrase “replacing trust with truth.” With conventional loans that have no government sponsors, the loans would typically be subject to costly third-party reviews every time they are sold or pawned. By using blockchain for origination, you get much greater transparency and immutability, which ultimately leads to certainty about what the loan entails. This means that there may be one-off reviews by third parties, but they do not need to be done repeatedly.
The combination of the co-creation platform, which standardizes origination, blockchain and standardized contracts for the purchase of loans should help create a much more liquid marketplace via Figure Connect. The company says it has more than 90 partners using its home equity lines of credit (HELOC) origination platform, which have signed up more than $10 billion in loans. Figure Connect caters to a broader range of private loans beyond HELOCs.
So far it has signed two originators – The Loan Store and Movement Mortgage – and two loan acquirers, 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 up front in pools. The market is called TBA because buyers only know the exact contents of the pool two days later. Buyers are willing to commit seemingly blindly due to the standardization of mortgages in the pool. Like us noticed several months ago, New York The Fed’s research has shown that this improves liquidity and actually reduces mortgage rates. This is partly due to standardization and partly due to assurance.
Figure plans to create a TBA-style marketplace. Cagney he wrote about plans later this year for a “permanent capital vehicle capable of buying loans from the market, packaging them in a ‘secured’ package and selling them to investors. Figure is working with capital partners to support this vehicle and facilitate a TBA market for lenders and investors, and we are also working with sell-side banks that can create markets in both TBA and pass-throughs.
Meanwhile, Cagney has stepped up to become president of Figure Technology Services, which is preparing for an IPO. He stepped down from the CEO role and took on the CEO role in Figure marketsa new spin-off that is both a cryptocurrency and a stock exchange that is expected to launch towards the end of the month.