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.
Hot Hand: Nima Ghamsari at Beverly Hills home where he has worked during the pandemic as his business exploded and his software powered nearly a third of the US mortgage market.
Among the big surprises of the pandemic economy was the housing boom. As fleeing city dwellers and work-from-home-confined families offered the price of broad suburban homes, rock bottom interest rates were attracting current homeowners to refinance at record levels. By the end of last year, 13.6 million mortgages worth $ 4.3 trillion had closed, breaking the previous record of $ 3.7 trillion in 2003. It was a miracle, given that most of that borrowing was taboo and overworked loan officers were operating from ad hoc home offices as their dogs barked and children went through remote classes.
The truth is, the mortgage market would probably have collapsed had it not been for a concealed weapon: Nima Ghamsari, a 35-year-old Iranian immigrant who made hundreds of thousands of dollars playing online poker while at Stanford; joined Palantir Technologies secret big data startup after graduation; and then, at just 26, quit that dream job to start his own software company, Blend Labs, in 2012. “I’ve always felt like I wanted to bet on myself. I’m willing to take a lot of risk, ”he says factually.
“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 really use it,’ ”Ghamsari recalls.
Although invisible to ordinary lenders and relatively low profile in his home in Silicon Valley, Blend has made a stunning impact. It now provides digital infrastructure to 287 U.S. banks, including mortgage lenders as large 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 three times more than the previous year. Its staff grew to 750 from 425 before the pandemic. Blend’s revenue doubled last year to about $ 100 million, according to Forbes estimates.
Thanks largely to Blend, the mortgage application, underwriting and closing process – once a week or months of paperwork, emails, faxes and phone calls – can now be made almost entirely digital. Blend saves 7.3 days and an average of $ 520 in operating costs per loan and allows a typical banker to close 14 mortgages a month, according to MarketWise Advisors consultants estimates. Blend integrates seamlessly with CoreLogic for credit scores, Plaid to check on bank accounts and Google Maps for location data. This allows some banks to offer homebuyers a quick tentative mortgage approval with a few mouse clicks – something a huge plus in a hot-white housing market.
“We all got stressed last year with the volume crunch,” said Tom Wind, president of US Bank Home Mortgage, one of Blend’s biggest customers. “We were able to serve more customers last year because of the efficiency we have with Blend.” In 2020, the US Bank saw a 136% increase in mortgage fee revenue without having to increase staff.
Ghamsari and Blend have produced results through a bucks convention on Sand Hill Road. Instead of trying to disrupt the banks (a common fintech mark), he decided to retrofit them, charging for the service. Its logic: It 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, after its banner year, Blend raised $ 300 million from blue-chip investors including Tiger Global’s Chase Coleman and Philippe Laffont’s Coatue Management at a $ 3.3 billion valuation, doubling its value in a five-month span. In April, Blend filed confidential documents with the Securities and Exchange Commission for a potential initial public offering, which (given that Blend has an incentive laden compensation structure similar to Tesla’s) could launch Ghamsari en route to billionaire status – if is Blend performing well. There are rumors that SPACs has shown interest in merging with Blend at double its latest valuation, though Ghamsari has not commented.
Blend is a standout on Forbes’ Fintech 50 this year, which celebrates private startups that are 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 last year’s seven picks, including Coinbase and Opendoor’s crypto exchange Technologies, which is buying homes fast. for cash, has since gone public. At Blend Count, at least four current members of the Fintech 50 are considering listing on the public markets.
Yet few have had such an impact on the lives of ordinary people. Since the end of World War II, home ownership has been at the center of the American Dream – as it was for the Ghamsari family itself. He moved to the United States from Iran in 1987 at the age of one, as his parents pursued graduate studies at the University of Michigan and then settled in Cincinnati, where his father taught mathematics 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-payment mortgage and the purchase of a two-story no frills home in Cincinnati for about $ 100,000. This was the rock that their family prospered. They later became franchise holders of a tutoring company, employing their teenage son to graduate and tutor students.
That’s not the only way for the ambitious Ghamsari to keep 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 pay for tuition, but Ghamsari tried his hand at online poker to help cover living expenses. Soon, when he wasn’t studying, he was playing day and night, with his earnings stretching far to the six figures. “This was my first taste of something where, if I really put a lot of energy and effort into improving, how good the results could be over a very long time,” he said.
To make more time for poker, Ghamsari bought a gas-powered golf cart to get around the sprawling Stanford campus at 8,000 acres faster. “I really make the most of my time around doing the things I want to do. I’m trying to make everything I don’t want to be as efficient – ideally non-existent – as possible, ‘he explains. (Taking 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 ‘time, funding is going to be really digital and proactive in real time.’
With little regard for the great undergraduate’s precious time, campus police built up Ghamsari’s banned golf cart. “It was totally embarrassing for me to have, in retrospect, ‘he admits. It does not matter. By the time he graduated with a degree in computer science in 2008, he had bought Aston Martin and had been recruited by the secret big data startup Palantir Technologies, originally funded by the CIA’s venture arm. He was assigned to Palantir’s campaign to deploy his software inside major American banks at the time, whose decades-old mortgage patchwork technology infrastructure gave poor hold on their problematic mortgage exposures. Ghamsari saw the huge opportunity to disrupt or transform banks.
“The insight that Palantir had was that this tremendous growth was in the amount of data held by organizations, but there was no way to harness that data for operational purposes,” he said. “You literally had to read pieces of paper, because all the data in the mortgage industry at the time was done in an analogue way.”
Like other employees, Ghamsari had stock options and could have swapped when Palantir went public in 2020. Instead, in 2012, he and two other young colleagues (former quantity trader Rosco Hill and engineer Eugene Marinelli) set up Blend along with Erin Collard, chief trader of billionaire Peter Thiel’s hedge fund, Clarium Capital, to bring new technology in the cloud to the go-to banks. They received early support from Thiel and Max Levchin, now worth $ 1.4 billion thanks to their new public fintech, Affirm, which allows people to pay for items in installments. The four founders worked out of Ghamsari’s cramped apartment in San Francisco, until his roommates complained. So they rented a Mission Bay apartment, which they would use as offices, hauling sleeping bags into toilets for naps during round-the-clock coding sessions.
At first, venture capitalists, who focused on fast, disruptive growth, were skeptical of Blend’s approach. Gaining 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] will not 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, major lenders like Bank of America and Wells Fargo began unloading hundreds of billions in mortgages to third-party servicers. Those servers needed help managing their huge new portfolios and were more open to getting it from young tech magicians than banks could have been. Early Mix 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, Qu Gilbert Loans billionaire Dan Gilbert launched Rocket Mortgage, which cut mortgage closing times from over 40 days to just a month – similar to what Blend was proposing. “Every bank’s table 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 solutions, ”recalls Jeffrey Reitman, partner at Bap investor Canapi Ventures.
Through the first half of 2017, Blend received just $ 67 million in outside funding. But after VCs found out it had acquired Wells Fargo, a US Bank and mortgage originator of Movement Mortgage as customers, they started calling. In August 2017, Blend raised $ 100 million at a half-billion-dollar valuation in a Greylock-led round with Emergence Capital, 8VC, Lightspeed Venture Partners and Nyca Partners.
With that cash, Ghamsari managed to add hundreds of smaller banks as customers. It also expanded functionality, giving lenders the ability to upload documents and banks to digitally manage more of the closing process, as well as the application process. In 2019, Blend raised another $ 130 million and hired Tim Mayopoulos, the 62-year-old former CEO of Fannie Mae, as its president, giving him instant credibility with banks and government-backed mortgage finance agencies, and known in the trade as GSEs. Ghamsari “came to visit me in my office, and he was this scruffy guy in a black T-shirt, ” Mayopoulos recalls. “But he clearly had the same vision of how the system should work as I did: It should all be driven by reliable data that is shared with all key participants in the process , from the consumer to the lender to the ultimate holder of credit risk [the GSEs]. ”
Blend doesn’t stop at mortgages – or banks. By 2019, it had launched paper reduction software for homeowner insurance and home and car equity loans. It also enables the Lennar home builder to offer mortgages. In March, it agreed to acquire the title insurance and settlement company Title365 for $ 422 million, with the goal of integrating even more of the home closure 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’ time, funding is going to be really digital and proactive in real time,’ he said. Users will open an app and receive real-time recommendations, based on their individual financial picture, all powered by Blend. If that happens, he adds, “This will be one of the largest companies in the world.”