Today San Francisco based Figure Technologies announced it has successfully issued an asset backed security (ABS) based on $149 million of loans that were originated, service, financed and sold via the Provenance blockchain. The underlying loans were originated by Figure, with Jefferies Group and Nomura Securities as underwriters. Tilden Park Capital was a loan contributor and subordinate note buyer.
Figure claims the collective benefit over the entire lifecycle of the loans is 100 basis points or 1%. Perhaps cheekily, it extrapolated that across the entire $3 trillion annual securitization market to give a potential savings of $30 billion.
It’s not the first to use ABS with blockchain. Multiple blockchain-based ABS have been issued in China. State-owned Bank of Communications was involved in a RMB9.3 billion ($1.3 billion) residential mortgage-backed security transaction. Both Fitch and Moody’s have explored the potential for asset backed security sector.
Figure is a unicorn that has raised more than $200 million in equity. It launched the Provenance blockchain to tokenize loans, and to date, more than $1 billion in debt has been processed on the blockchain. Figure itself has a consumer facing website where it initially offered home equity loans (HELOC) and has now expanded to mortgage refinancing and student loans.
“Blockchain has an almost incalculable potential for unlocking value for the world’s financial markets and we’re spearheading that transformation by taking on the big challenges like securitization,” said Mike Cagney, CEO of Figure who also founded student loand firm SoFi. “Until now, the industry has been slow to move past white papers and proof of concept projects.”
Unquestionably the automation enabled by blockchain should reduce back office costs and cut the need for intermediaries. By lowering the costs, smaller deals become more viable.
However, ABS are often blamed for the 2008 crisis. More recently, some have claimed there’s a moral hazard. The theory is the loan originator might take less care if the default risk is borne by a third party, the investor in the ABS. This is a criticism of ABS in general, unrelated to Figure.
We asked Figure about this issue and any details it might have on ratings. We hope to update the article later.
In other news, Figure has filed a defamation lawsuit against an asset-backed securities newsletter. It claims the publisher of Asset-Backed Alert made false assertions about this securitization and another pending one.