Forbes

Paper Shredder

- By Antoine Gara and Margherita Beale

Nima Ghamsari has built Blend Labs into a $3 billion business by weaning the nation’s biggest mortgage lenders off their diet of dead trees.

Plus: The Fintech 50

Former semipro poker player NIMA GHAMSARI bet big that fintech wasn’t just for startups. He has built Blend Labs into a business worth more than $3 billion by weaning the nation’s biggest

mortgage lenders off their steady diet of reams of dead trees—and he’s about to go public.

Among the big surprises of the pandemic economy was the housing boom. As fleeing city dwellers and cramped work-from-home families bid up the price of spacious suburban homes, rock-bottom interest rates enticed existing homeowners to refinance in record numbers. By the end of last year, 13.6 million mortgages worth $4.3 trillion had been closed, shattering the previous all-time record of $3.7 trillion in 2003. It was a miraculous feat, considerin­g that most of that lending was done while in-person meetings were taboo and overworked loan officers operated from ad hoc home offices as their dogs barked and children fidgeted through remote classes.

Truth is, the mortgage market probably would have melted down were it not for a secret weapon: Nima Ghamsari, a 35-year-old Iranian immigrant who made hundreds of thousands of dollars playing poker online while at Stanford;

joined secretive big-data startup Palantir Technologi­es upon graduation; and then, at just 26, quit that dream job to start his own software company, Blend Labs, in 2012. “I have always felt like I wanted to bet on myself. I’m willing to take a lot of risk,” he says matter-of-factly.

Though invisible to ordinary borrowers and comparativ­ely low-profile in its Silicon Valley home, Blend has had a staggering impact. It now provides digital infrastruc­ture to 287 U.S. banks, including such big mortgage lenders as Wells Fargo and First Republic Bank. In 2020, Blend software was used to process $1.4 trillion in mortgage and consumer loans, up nearly threefold from the prior year. Its staff grew to 750 from 425 before the pandemic. Blend’s revenue doubled last year to about $100 million, Forbes estimates.

Thanks in no small part to Blend, the mortgage applicatio­n, underwriti­ng and closing process— once a weeks- or months-long slog of paperwork, emails, faxes and phone calls—can now be done almost entirely digitally. Blend saves an average of 7.3 days and $520 in operationa­l costs per loan and allows a typical banker to close 14 mortgages a month, consultanc­y MarketWise Advisors estimates. Blend seamlessly integrates with CoreLogic for credit scores, Plaid to check on bank accounts and Google Maps for location data. This enables some banks to offer home hunters quick tentative mortgage approvals with a few mouse clicks—a huge plus in a white-hot housing market.

“We all got stressed last year with the crush of volume,” says Tom Wind, president of US Bank Home Mortgage, one of Blend’s largest customers. “We were able to serve more customers last year because of efficienci­es we have with Blend.” In 2020, US Bank saw a 136% increase in mortgage fee revenue without having to increase staff.

Ghamsari and Blend have produced results by bucking convention on Sand Hill Road. Instead of seeking to disrupt the banks (a common fintech goal), he decided to retrofit them, charging for the service. His rationale: He wouldn’t have to waste time and money on consumer marketing and could potentiall­y make financial services easier to access for 100 million consumers instead of maybe a million or two.

In January, fresh off its banner year, Blend raised $300 million from blue-chip investors including Chase Coleman’s Tiger Global and Philippe Laffont’s Coatue Management at a $3.3 billion valuation, doubling its worth in a span of five months. In April, Blend filed confidenti­al documents with the Securities and Exchange Commission for a possible initial public offering, which (given that Blend has an incentive-laden compensati­on structure similar to Tesla’s) could launch Ghamsari on the road to billionair­e status—if Blend performs well. There are whispers that SPACs have shown interest in merging with Blend at double its latest valuation, though Ghamsari won’t comment.

Blend is a standout on this year’s Forbes’ Fintech 50, which celebrates private startups transformi­ng financial services. Twenty of the Fintech 50 are new this year, reflecting the energy and record venture capital pouring into the sector, the impact of Covid-19 and the fact that six of last year’s picks, including crypto exchange Coinbase and Opendoor Technologi­es, which buys homes quickly for cash, have since gone public. Counting Blend, at least four current members of the Fintech 50 are considerin­g listing on the public markets.

Yet few have had so much impact on ordinary folks’ lives. Since the end of World War II, owning a home has been at the center of the American Dream—as it was for Ghamsari’s own family. He moved to the U.S. from Iran in 1987 when he was a year old, as his parents pursued graduate studies at the University of Michigan and then settled down in Cincinnati, where his dad taught math at the University of Cincinnati and his mother taught chemistry at Xavier University. After years of renting, Ghamsari’s parents were finally approved in 1998 for a low-down-payment mortgage and purchased a no-frills two-story home in Cincinnati for about $100,000. It was the rock their family prospered upon. They later became franchisee­s of a tutoring company, employing their brainy teenage son to grade and tutor students.

That wasn’t the only way the ambitious Ghamsari kept busy before graduating from high school first in his class. He worked at McDonald’s, Starbucks and Circuit City, rebuilt Dell computers and taught himself to code. At Stanford, a need-based scholarshi­p helped cover tuition, but Ghamsari tried his hand at online poker to help pay for living expenses. Soon, when he wasn’t studying, he was playing day and night, with his winnings extending well into the six figures. “It was my first taste of something where, if I really put a lot of energy and effort into getting better, how good the outcomes could be over a very long run,” he says.

To make more time for poker, Ghamsari bought a gas-powered golf cart to get around Stanford’s sprawling 8,000-acre campus faster. “I really optimize my time around doing the things that I want to do. I try to make everything that I don’t want to do be as efficient—ideally nonexisten­t—as possible,’’ he explains. (Stealing a page from Steve Jobs’ playbook, he has 30 black T-shirts, he says,

because “I don’t like spending time thinking about what I’m going to wear.”)

With little regard for the brilliant undergradu­ate’s precious time, campus police impounded Ghamsari’s forbidden golf cart. “It was totally obnoxious for me to have, in retrospect,’’ he concedes. No matter. By the time he graduated with a computer science degree in 2008, he had bought an Aston Martin and been recruited by the ultrasecre­tive big-data startup Palantir Technologi­es, originally funded by the CIA’s venture arm. He was assigned to Palantir’s push to deploy its software inside America’s then-teetering big banks, whose patchwork, decades-old technology infrastruc­ture gave them a poor grasp of their problemati­c mortgage exposures. Ghamsari saw up close the massive opportunit­y to disrupt banks— or to transform them.

“The insight Palantir had was that there was this immense growth in the amount of data being captured by organizati­ons, but there was no way to harness that data for operationa­l things,” he says. “You had to literally read pieces of paper, because all the data in the mortgage industry at the time was done in an analog way.”

Like other employees, Ghamsari had stock options and could have cashed in when Palantir eventually went public in 2020. Instead, in 2012, he and two other young colleagues (former quant trader Rosco Hill and engineer Eugene Marinelli) founded Blend together with Erin Collard, the head trader of billionair­e Peter Thiel’s hedge fund, Clarium Capital, to bring new cloud-based technology to the earthbound banks. They gained early backing from Thiel and Max Levchin, now worth $1.4 billion thanks to his newly public fintech, Affirm, which allows people to pay for items in installmen­ts. The four founders first worked out of Ghamsari’s cramped San Francisco apartment, until his roommates complained. So they rented a Mission Bay apartment, which they used as offices, hauling sleeping bags into closets for naps during round-the-clock coding sessions.

At first, venture capitalist­s, focused on fast, disruptive growth, were skeptical of Blend’s approach. Winning business from stodgy banks was uncertain, they warned, and there were only so many banks to sell to. “Venture capitalist­s doubted us. I can’t even count how many times I’ve heard them say, ‘This will never work,’ or ‘[banks] won’t actually use it,’ ” Ghamsari recalls.

But changes in the mortgage market eventually played into Ghamsari’s hands. In an effort to cut risk after the 2008 financial crisis, large lenders like Bank of America and Wells Fargo started offloading hundreds of billions in mortgages to third-party servicers. Those servicers needed help managing their massive new portfolios and were more open to getting it from young tech wizards than banks might have been. Early Blend customers included Nationstar Mortgage (now Mr. Cooper), the country’s third-largest mortgage servicer.

Blend’s big break, however, came courtesy of a competitor. In 2015, Dan Gilbert, the Quicken Loans billionair­e, launched Rocket Mortgage, which cut mortgage closing times from over 40 days to just a month—similar to what Blend was offering. “Every bank’s board woke up and said, ‘Oh, my God, we need to find a solution to compete with this, because if we don’t, we’re going to lose volume to Rocket.’ Blend was one of those answers,” recalls Jeffrey Reitman, a partner at Blend investor Canapi Ventures.

Through the first half of 2017, Blend received just $67 million in outside funding. But after VCs saw it had won Wells Fargo, US Bank and mortgage originator Movement Mortgage as customers, they started calling. In August 2017, Blend raised $100 million at a half-billion-dollar valuation in a round led by Greylock with Emergence Capital, 8VC, Lightspeed Venture Partners and Nyca Partners.

With that cash, Ghamsari was able to add hundreds of smaller banks as customers. He also expanded functional­ity, giving borrowers the ability to upload documents and banks the ability to manage more of the closing process, as well as the applicatio­ns process, digitally. In 2019, Blend raised a further $130 million and hired Tim Mayopoulos, the now 62-year-old former CEO of Fannie Mae, as its president, giving it instant credibilit­y with banks and government-backed mortgage finance agencies, known in the trade as GSEs. Ghamsari “came and visited me in my office, and he was this scruffy guy in a black T-shirt,’’ Mayopoulos recalls. “But it was clear that he had the same vision about how the system ought to work that I did: It should all be driven by reliable data that gets shared with all the key participan­ts in the process, from the consumer to the lender to the ultimate holder of the credit risk [the GSEs].”

Blend isn’t stopping at mortgages—or banks. By 2019, it had launched paper-reducing software for homeowner’s insurance and home-equity and auto loans. It’s also enabling homebuilde­r Lennar to offer mortgages. In March, it agreed to acquire title-insurance and settlement company Title365 for $422 million, with the aim of integratin­g even more of the home closing process into its services—and collecting insurance fees.

Ghamsari’s vision is hardly modest. He argues that software can eliminate tens of billions of dollars a year of unneeded friction in the financial system. “In 10 years, finance is going to be truly digital and proactive in real time,’’ he says. Consumers will open an app and get real-time recommenda­tions, based on their individual financial picture, with Blend powering it all. If that happens, he adds, “This will be one of the biggest companies in the world.”

“TECHNOLOGY HAS BECOME THE DEFINING FORCE OF A NEW SOCIAL ORDER IN WHICH EFFICIENCY IS NO LONGER AN OPTION BUT A NECESSITY IMPOSED ON ALL HUMAN ACTIVITY.” —Jacques Ellul

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