Tellus, an Andreessen Horowitz-backed fintech firm that claims it will possibly supply individuals greater yields on their financial savings balances through the use of that cash to fund sure U.S. single-family-home loans, is beneath scrutiny by the U.S. authorities.
On Might 2, as first reported by Barron’s, U.S. Senator Sherrod Brown, chairman of the Senate Banking, Housing, and City Affairs Committee, wrote a letter to FDIC Chairman Martin Gruenberg expressing considerations about Tellus’s claims. In that letter, Brown pressed the FDIC to evaluation Tellus’s enterprise practices “to make sure that prospects are shielded from monetary fraud and abuse.” He stated an article revealed early final month by Barron’s raised “a number of crimson flags.”
Brown additionally wrote to Tellus’s CEO and Chief Expertise Officer Jeromee Johnson outlining his considerations and requested extra info on their enterprise practices.
Like nearly all of fintech startups, Tellus shouldn’t be really a financial institution however as an alternative companions with banks to supply banking companies to shoppers. Whereas the corporate was based in 2016, it solely emerged from stealth final 12 months after elevating $16 million in seed funding final 12 months led by Andreessen Horowitz. In response to Barron’s (which cited data filed in Santa Clara County, California), an Andreessen Horowitz common companion, Connie Chan, earlier wed Tellus co-founder Rocky Lee. She filed a wedding dissolution/divorce lawsuit in 2021. It isn’t clear if the pair continues to be married. It is usually unclear which companion from a16z led the spherical.
TechCrunch has reached out to Tellus and Andreessen Horowitz, neither of which have but to answer requests for remark.
Tellus’s enterprise mannequin is exclusive, and dangerous. It targets present dwelling homeowners who want to improve to bigger houses with out promoting the houses they stay in, which makes it tough for them to obtain approval for loans by conventional mortgage lenders.
Final November, Lee advised TechCrunch that Tellus’s rates of interest are sometimes 200 foundation factors greater than the usual conforming mortgage. For instance, in as we speak’s market if a mortgage’s fee is 7%, Tellus will cost 9% — a premium as a result of it claims it’s providing to lend cash to American single-family-home debtors “in prime cities” who would in any other case not be capable to get such loans. As a result of it’s utilizing its retail prospects’ financial savings deposits to fund these loans at the next yield, Tellus makes its cash on the unfold of what it’s paying out in curiosity versus what it’s charging its debtors.
The mannequin is precisely what has Brown involved. If dwelling homeowners default on these loans, then prospects’ deposits are in danger. When TechCrunch probed Lee on that time final 12 months, he claimed that Tellus makes use of “very strict underwriting standards” and had not but seen any defaults as a result of nearly all of its debtors “go on to quickly after refinance their loans at extra favorable phrases.” In that earlier dialog with TechCrunch, Lee stated Tellus had lent out greater than $80 million with a median mortgage dimension of $2 million since its 2016 inception (Barron’s just lately reported that the determine was now $100 million, based on trade tracker Attom). Lee additionally stated the corporate companions with mortgage brokers to seek out debtors, and that it finds its retail shoppers through channels reminiscent of Instagram, TikTok and Google.
In his letter, Brown wrote: “Though Tellus claims that it isn’t a financial institution, a truth its web site repeatedly reminds prospects of, I’m involved that Tellus’s observe of selling high-interest deposits to fund actual property loans might give shoppers the misunderstanding that their cash is as secure as a deposit at an FDIC-insured financial institution. I urge the FDIC to take a better take a look at Tellus and its operations.” He additionally identified that Tellus does most of its actual property lending within the San Francisco Bay Space, a area the place property values have been declining.
He added: “This downswing might pose elevated dangers to Tellus depositors if Tellus debtors default on their loans.”
Brown additionally identified that whereas Tellus touted partnerships with FDIC-insured banks reminiscent of JPMorgan Chase and Wells Fargo, it seems these relationships “didn’t exist.” Certainly, when Barron’s talked with each banks concerning the firm’s claims towards that finish, they expressed shock, reported Barron’s.
“Wells Fargo doesn’t have the connection that’s described on Tellus’s web site,” the corporate stated in an announcement to Barron’s. “We’re working with Tellus to replace the language on their web site, and take away our firm’s title.” Wells Fargo stated it additionally disagrees with the outline of itself as a “banking companion.”
JPMorgan advised Barron’s it does “not have a banking or custodial relationship with the corporate.”
Barron’s revealed its investigative piece about Tellus on April 11. On the FAQ part of Tellus’s web site, the corporate posted an replace on April 26, saying: “Tellus shouldn’t be a financial institution, and your Tellus accounts aren’t FDIC insured. All of our money is held at main banks, every member FDIC insured. We hold this money at completely different banks to make sure you all the time have entry to your cash, even when there’s an issue with one in every of these banks. As soon as we lend cash, that money is taken into account ‘deployed.’ Deployed money acts as a mortgage, which means it’s an actual property mortgage itself and has no FDIC insurance coverage. These loans aren’t mortgage-backed securities, as Tellus holds no mortgage-backed securities.”
Basically, there was widespread panic about accounts that aren’t FDIC-insured, main individuals to withdraw billions of {dollars} from regional banks since mid-March to guard their property and to the shutdowns of Silicon Valley Financial institution and First Republic Financial institution.
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