Figure Technologies has announced the completion of the first securitisation of a bundle of home equity lines of credit, worth over $150 million, on a blockchain.
Figure is touting the achievement as the first time such a transaction has taken place entirely on a blockchain, from origination of the loans to the issuance of the bonds to the collection of borrowers' monthly payments.
The parties to the transaction included Figure as the originator, Jefferies Group (structuring agent, lead underwriter, and warehouse provider), Nomura Securities International, Inc. (lead underwriter), Tilden Park Capital (loan contributor and subordinate note buyer) and an unnamed large asset manager (senior note buyer).
Although securitisation is not as common in Australia as in America, it is a fairly standardised. At a high level, the process involves four parties:
a company which takes a consumer’s loan application (originator);
a lender funding the loan (warehouse lender);
a third company, selling the securities to investors (underwriter);
another entity which accepting payments and collects overdue amounts (servicer).
By automating the process through the Provenance blockchain, Figure claims it can speed up the process and cut expenses by half. Figure's CEO Mike Cagney said:
It costs us significantly less to originate loans on blockchain... We don’t have to pay for boarding costs, loan defects, while reducing quality control expenses,
Figure says it can approve a HELOC in five minutes and fund the loan in five days instead of the typical 30 to 60 days. The firm claims its technology could save $30 billion in costs for the $3 trillion annual securitisation market if applied widely.
Commenting on the announcement on Linkedin, Director of Provenance.io at Figure Zev Shimko said:
It’s about time the #securitization space got a tech lift. Figure completes its first HELOC securitization on Provenance Blockchain, Inc., generating over 100 bps of savings
Figure's blockchain, developed in-house and known as Provenance, is built on the consensus mechanism of Hyperledger. Provenance is a public permissioned blockchain with a publicly accessible ledger, which only authorised parties have write access to.
While Figure isn't the first to issue bonds on the blockchain, following in the footsteps of European financial institutions Santander and Societe Generale who issued bonds on the public Ethereum blockchain (but only to themselves) and Project Bond-i in Australia, their end-to-end home equity securitisation program is a first.
Since being in early 2018, Figure has raised over USD$225 million at a $1.2 billion valuation, including a $103 million Series C funding round in November and can name Morgan Creek Digital, Ribbit Capital and Digital Currency Group, among others as its investors.