de-fi home financing

Issue 33 - May 21st, 2021

Last week’s post “Tokens Will Replace Title Policies” was my most wide-read post to date in terms of views, and today I want to build on that idea in how I see the “token” idea enabling the continued evolution of the “home financing” market.

The mortgage process as it exists today is horrible 95% of the time. I say 95% because there are some incredibly smart people building wildly exciting “new age” mortgage companies that are massively overhauling the current dinosaur experience that is prevalent today. As the home finance industry continues to evolve, I believe that “de-fi” financing platforms for home purchases will become an increasingly important part of the industry.

Mortgages themselves are archaic products meant to serve the bank’s bottom line without the best interest of the consumer, but there has been little innovation in this space to give consumers more choice due to bureaucracy and red tape. If you have ever gone through the mortgage process when purchasing a home, then you know how insanely outdated it is and how pathetic the experience is for the most part.

The mortgage industry is one of the most regulated industries on earth, but the rise of alternative lending platforms and relaxations of red tape will allow more innovation around home loans and more choice for consumers in the long run.

The ideas I share here are just a few ways this industry could transform over time, and I am excited to see how it plays out.

Phase 1- We are already in this phase with startups iterating and improving on the mortgage and lending process. Companies like So-Fi, Better.com, Ribbon, UpEquity, Homeward, RedDoor, OpenDoor and others are massively improving the current way consumers obtain financing for their homes and purchase homes in general with cash offer products, trade-in products, rent to own products, and other innovative ways to make home financing more appealing.

Phase 1 will last a considerable number of years into the future as there is so much room for improvement. “Red tape” in various ways will have to loosen for the ideas presented in Phase 2 to have mass market application.

Phase 2 - In my opinion, this phase in the evolution of home financing is years and years away as innovations on the title and escrow side of the transaction have to catch up in order to allow “tokenization” on the financing side. Once “tokens” are in place to verify property ownership, liens, and other title encumbrances then the ability for completely new age financing models can rocket ship their way onto the market giving the banks some competition in the “mortgage” market.

Here is just one way “Johnny Homebuyer” could purchase a home in this future world with de-fi financing:

1. Johnny decides he wants to purchase his first home, and he begins to look at homes with a real estate agent.

2. Real estate agent suggests to Johnny that he should get pre-approved to know his purchasing power when the time comes to make an offer on a home.

3. Instead of calling up his local bank, Johnny decides to post his “buyer profile” on “DeFiHomeLoans.com”

4. Johnny enters his social security number and other identifying info and the platform automatically pulls financial info on Johnny and produces a “credit score” of sorts for Johnny.

5. Johnny also inputs the type of property he is wishing to purchase: single family, condo, land, rental property, etc.

6. Johnny’s buyer profile and desired property type is published onto the marketplace for “DeFiHomeLoan.com” investors to see.

7. Investors who participate in the “DeFiHomeLoan.com” marketplace submit terms in a reverse “Dutch Auction” style process to give Johnny financing options for his home purchase. Read more about Dutch Auctions here.

8. Different loan options are presented to Johnny within 24 hours of his profile being submitted, and Johnny then selects the option which he thinks makes the most sense for his scenario.

9. During the home escrow process once the property is in title and set to close, Johnny executes a “smart contract” between himself and the “investors” who are contributing to Johnny’s home loan. The contract is recorded on the DeFiHomeloan.com blockchain for all to see.

10. Post closing, Johnny makes monthly payments just like any other loan directly to the DeFiHomeLoan.com platform and the investors who own a small piece of the “token” representing Johnny’s transaction on the blockchain are paid monthly dividends until the home is sold and the loan is paid back.

Phase 3 - Since the entire transaction is recorded on a blockchain and investors own a small piece of the “token” representing the transaction, the investors can also buy and sell their pieces of the token on the DeFiHomeLoan.com marketplace to other yield seeking investors.

This entire process is not possible today, but the future is always different from the present day. I love to brainstorm futuristic ideas as the real estate industry has never been more exciting. New ideas are taking hold, and the old guard mentality is slowing fading. As we press forward in time, we will see exciting business launch in all facets of the real estate industry. I am excited to play a part in that future.

Newsworthy Links To Share

1. roofr, a sales platform for roofing contractors, just raised $4.25 million in post-seed funding led by Bullpen Capital. Currently, roofr is focused on building tools to help roofing companies close the deal with their customers. They provide roofers with photographs of roofs from their partner Nearmap, whose planes cover cities at low altitude to take high-definition pictures, including of roofs. Then the roofr software allows these contractors to draw their own roof measurement reports through these drone, blueprint and satellite images and produce a report, or they can pay Roofr $10 per report to measure the roof for them. (TechCrunch)

2. Hearth, a loan app for home repair contractors based in Austin, announces $23M Series B round. They have built a marketplace that lets “contractors quote monthly payments in real-time as opposed to one lump cost.” Hearth is currently used by more than 10,000 contractors and offers financing solutions, payment collections, invoicing, insurance and more. (FinLedger)

3. Super, a subscription-based repair and maintenance service for homeowners, has raised a $50 million dollar round to expand into new cities. “Become a member and we’ll pay to repair or replace covered appliance and home system breakdowns. Super’s concierge service manages the logistics for your home service needs. From your desktop, tablet, or mobile phone, you’re only one tap away from getting the service you need for your home.” (TechCrunch)

4. PocketList, a proptech startup that had raised $4 million dollars, shuts down after pandemic shuttered customers. PocketList enabled users to rate apartment features like natural lighting and parking in the neighborhood. There was a Q&A section for past tenants to field concerns and a chat function for landlords and prospective renters. The idea was to make renters feel like they had unvarnished insight into a unit, much the way Yelp lets users rate restaurants. (Dot.la)

5. PROPERTY HIGHLIGHT: 145 Neck Path in East Hampton, NY for $7,099,000. This strikingly modern “fish-bowl” resembling smart-home with underground garage, pool, and views of 20 acre nature preserve make this property one of the most unique homes in the Hamptons area.

   

   A house unlike any other for a buyer unlike any other, this 10,000 sqft smart house comes with a 4 car underground garage, 27x55 Gunite Pool, 6 En Suite Bedrooms and in total 7 Bathrooms. Built by the renowned Juan Figueroa this property comes with the ability to have every aspect of the home controlled from its soon to be buyers cellphone! With floor to ceiling glass windows this already immense house feels even bigger every second inside. Custom Scavolini kitchen with top of the line appliances by Gaggennau. Two separate staircases allow for one half of the upper to level to contain two private master suites featuring custom walk-in closets and master bathrooms, with natural stone, brilliant quartz, double shower heads, and luxurious soaking tub. While the other leads to 4 additional spacious bedrooms, each one with ensuite all marble bathrooms, custom closets, and individually controlled air conditioning. One of its many unique features come in the form of a 15x20ft door that seamlessly connects the outdoors with the back of the property. The outdoor space offers a 27x55 foot heated, saltwater gunite pool with a brilliant inlaid spa, and features an independent music system and custom lighting. An expansive stone patio leads from the house, surrounds the pool, and overlooks a 20-acre reserve adjacent to the property. CLICK HERE FOR MORE PHOTOS!