The Revolutionary Use of Blockchain Technology in the Mortgage Industry: Figure’s ABS Release

According to reports, Figure announced its latest issuance of mortgage-backed securities (ABS), all of which are recorded on the Provence public blockchain founded by Figure. This is the first Figure ABS release to receive a rating. DBRS Morningstar gives AAA rating to Class A bills and A (low) rating to Class B bills. ABS is underwritten by Jefferies, JP Morgan, and Goldman Sachs.

Figure Issuing ABS on Provence Public Blockchain

According to reports, Figure, a leading fintech firm in the United States, has recently announced the issuance of its latest mortgage-backed securities (ABS) on the Provence public blockchain, which is the first Figure ABS release to receive a rating. This historic move represents a significant milestone in the mortgage industry’s evolution, as it demonstrates how blockchain technology can transform traditional financial systems. This article aims to explore the innovative use of blockchain and Figure’s pioneering ABS release, and its implications for the mortgage industry.

Introduction: Figure and Provence Blockchain

Figure, founded in 2018 by former SoFi CEO Mike Cagney, is a prominent player in the fintech industry that focuses on leveraging blockchain technology to simplify and streamline lending processes. Provence is a public blockchain developed by Figure, which enables the company’s various lending platforms such as mortgage, personal, and student loans. It is a highly secure, fast, and transparent ledger system, which can verify borrower’s identity and credentials, authenticate assets and track payments, among other functions.

The Emergence of Mortgage-Backed Securities

One of the latest innovations in the mortgage industry is the issuance of mortgage-backed securities (MBS), which are fixed-income securities based on the cash flow from a pool of mortgages. They enable lenders to sell off their loans to investors, reducing their liability and freeing up more capital to originate new loans. MBS are underwritten by investment banks or other financial institutions that create multiple classes of securities according to the risk appetite of investors. The most senior tranche, typically rated AAA, is the safest and gets paid first; while the lower tranches carry more risk but offer higher yields.

Figure’s Pioneering ABS Release

Figure’s ABS release is a groundbreaking milestone because it represents the first time that MBS are created, recorded, and settled entirely on a public blockchain. This discloses the potential of blockchain technology to enhance transparency, efficiency, and trust in the mortgage industry. The ABS release consisted of two tranches: Class A bills and Class B bills, with different levels of risk and return. DBRS Morningstar gave the AAA rating to Class A bills, indicating maximum security, while assigning an A (low) rating to Class B bills. This reflects the sound risk management and underwriting practices of the market’s leading players, including Jefferies, JP Morgan, and Goldman Sachs.

Implications for Blockchain and Mortgage Industry

This development has several ramifications for both blockchain and the mortgage industry. Firstly, it demonstrates the potential of blockchain technology to create a secure and tamper-proof infrastructure that can facilitate complex financial transactions. Secondly, it establishes a precedent for companies to issue various securities on the blockchain, ranging from asset-backed securities to equity and derivative instruments. Thirdly, it reveals the need for regulatory frameworks to keep pace with technological advancements and ensure investor protection, market stability, and fair competition.

Conclusion

Figure’s ABS release marks a new era for the mortgage industry, where blockchain technology is poised to shape the market’s future. It enables greater transparency, efficiency, and safety in financial transactions, providing a viable alternative to traditional systems. The ABS release serves as a benchmark for other companies to leverage blockchain’s power in serving various business models across different industry sectors. However, the challenges of standardization, integration, and security cannot be overlooked. Thus, Figure’s initiative should be a call to action for policymakers and market players to explore further opportunities for blockchain innovation.

FAQs

1. What is a mortgage-backed security (MBS)?
A: A mortgage-backed security is a fixed-income security based on a pool of mortgages that enables lenders to sell off their loans to investors.
2. What is blockchain technology?
A: Blockchain technology is a distributed ledger system that enables secure and transparent digital transactions between parties without the need for intermediaries.
3. What is Figure’s ABS release?
A: Figure’s ABS release is the first mortgage-backed security release to be entirely created, recorded, and settled on a public blockchain, representing a significant milestone for blockchain and the mortgage industry.