SoFi's Former CEO Harnesses the Blockchain for Home Loan Startup

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(Bloomberg) -- Mike Cagney, who built SoFi into America’s biggest student loan refinancer before quitting amid allegations of sexual harassment at the fintech firm, is preparing for his second act: a startup offering home-equity loans.

Cagney has raised $50 million for San Francisco-based Figure, which plans to use the blockchain to help expedite loan approvals in minutes rather than days, according to people familiar with the matter. Two global banks have agreed to finance loans and several firms have agreed to purchase them, say the people, who requested anonymity to discuss a private matter.

Ribbit Capital and DCM Ventures led the investment round with the participation of other investors including Peter Thiel’s Mithril Capital Management, the people say. DCM Ventures backed Social Finance Inc., Cagney’s previous company.

Investors are betting Figure has chosen an auspicious moment to enter the home-equity financing business. While banks pulled back on such loans after the financial crisis, they’re becoming popular again thanks to rising home prices that give owners more equity to borrow against. Figure plans to start lending in the third quarter.

Figure and Cagney confirmed the financing details but declined to comment further.

Cagney, 47, hasn’t said much about his new venture but is known for outsize ambitions. At SoFi, he dreamed of creating a “Wells Fargo of the future” that would target millennials with products ranging from insurance and mortgages to wealth management. That was always a long shot given all the competition. In any event, he stepped down after allegations that some managers sexually harassed employees and that he himself engaged in at least one inappropriate relationship with a female employee, which he has denied.

At SoFi, Cagney targeted so-called HENRYs -- high earners, not rich yet. With Figure, he’s chasing a demo that he’s calling CLAREs -- cash light and rich in equity, the people say. CLAREs tend to be older Americans with significant equity in their homes, while many SoFi customers are first-time home buyers. Figure plans to offer three- to 10-year home equity loans and a buy-lease-back product -- purchasing retirees’ homes then leasing them back.

Figure currently has about 56 employees, including a team of engineers in Montana. The startup has also hired the former Chief Risk Officer of LendingHome, Cynthia Chen, and former PeerStreet Chief Legal Counsel, Sara Priola.

The startup is basing its product on blockchain as it tries to build a faster, cheaper and more secure way to create and package financial assets. Blockchain became known for providing an immutable, public ledger that tracks ownership of the virtual currency bitcoin. The technology is now being repurposed to handle all sorts of assets and transactions, even logging contract terms and archiving data, such as medical records.

Figure’s goal is to build a system that facilitates financing, but ultimately would act as a market where people can buy and sell credit. Using blockchain at various steps would cut out a slew of middlemen typically involved in creating and packaging loans for sale -- such as auditors, lawyers, underwriters, custodians and trustees. Figure also plans to use its blockchain technology to track property ownership, reducing or eliminating the cost of title insurance.

Many blockchain platforms feature tokens that serve as an in-house currency for the ledger. Figure is creating a finite number of tokens, named “hash,” that would change hands at various points of the process -- for example, to cover the cost of accepting a loan payment. Figure and firms providing support to the blockchain would collect small amounts as a reward. Investors also may use it for buying and selling assets in the market.

Initially, Figure will distribute hash to participants. But it also plans to buy and sell it as a market maker, ensuring hash can be exchanged for cash in real time. The company intends to work closely with the Financial Industry Regulatory Authority -- the nation’s main brokerage regulator -- about serving as a broker-dealer for the tokens, according to the people. It’s also considering a public sale of hash to help encourage its adoption, the people say.

Figure is entering a crowded market where established companies and startups alike are trying to make it easier for Americans to unlock equity in their homes. Incumbents include Unison Home Ownership Investors and newcomers like Point Digital Finance. Banks are also tinkering with blockchain. Credit Suisse Group AG, U.S. Bancorp, Wells Fargo & Co. and Western Asset Management Co. have experimented with using the technology to make it easier and less costly to track home mortgages packaged into securities.

Cagney, who worked at Wells Fargo for several years, understands the industry and has a reputation for innovating and building companies. While it’s true SoFi hasn’t yet become the “bank of the future” he promised, its core student-loan refinancing business is doing well and the company has started moving into other financial services. The question for Figure’s backers is whether Cagney has learned from his experience at SoFi, where he presided over a toxic culture.

©2018 Bloomberg L.P.

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