Fintech 50

Fintech 50

How An Ex-Semipro Poker Player Bet Big And Won The $4.3 Trillion Mortgage Market

How an ex-semipro poker player bet big and won the $4.3 trillion mortgage market: #Fintech50

6/9/2021 4:18:00 AM

How an ex-semipro poker player bet big and won the $4.3 trillion mortgage market: Fintech50

Nima Ghamsari and his Blend Labs weaned the nation’s biggest mortgage lenders off of paper—and just in time to prevent a pandemic meltdown.

, 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

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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. headtopics.com

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.”) 

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.’’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 ultra-secretive 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 havecashed in when Palantir eventuallywent 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 headtopics.com

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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. “Venturecapitalists 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.  headtopics.com

Through the first half of 2017, Blendreceived 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].”

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Blend isn’t stopping at mortgages—or banks. By 2019, it had launched paper-reducing softwareforhomeowner’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.”

I’m a staff writer and associate editor at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, mergers, and… Read MoreI’m a staff writer and associate editor at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, mergers, and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a member of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to agara@forbes.com. Follow me on Twitter at @antoinegara

 Read LessI'm an assistant editor at Forbes covering real estate, retail, and food & drink. Prior to joining Forbes, I was a staff writer at the Daily Democrat and freelanced for… Read More Read more: Forbes »

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