Figure Technology Solutions, a blockchain-native fintech, has pulled off something the private-label mortgage market rarely sees: getting bond investors to fund a $300 million securitization before the loans inside it were originated.
In a prefunded deal, investors agree on terms and send money in advance, before the collateral exists. That reverses the usual sequence, in which an originator writes a loan and then seeks a buyer, bearing the risk that interest rates move or that no buyer emerges at the expected price in the interim.
Figure CEO Michael Tannenbaum said he persuaded investors to commit capital by standardizing production across the company's origination network. The loans in the securitization are produced through the same process and technology across more than 380 partners, he said.
"Any loan that's going through our platform is going to be sold in a standardized, homogenized way across the entire capital market, just like Fannie Mae," he said.
That consistency allows investors to be confident about the collateral before it’s originated. Figure has completed roughly one securitization per month, according to Tannenbaum, with senior bonds rated AAA by S&P and Moody's. The most recent transaction, he said, was the first to be prefunded.
Once investors have committed, Tannenbaum said, they cannot reject the loans after origination or change the agreed terms, even if market conditions shift.
"We agree upon the parameters up front and prefund the deal, send the money in advance, and then the deal is spoken for, kind of like an escrow," he said.
That means if rates rise before the loans are originated and settled, the investors are left holding a commitment to buy at yesterday's pricing.
"The interest rate risk has been transferred from the originator onto the investor," Tannenbaum said.
For Non-QM and other private-label originators, he expects the arrangement to provide certainty of execution and liquidity more commonly associated with loans backed by government-sponsored enterprises. Figure is the nation's largest non-banker provider of home equity lines of credit (HELOCs), though, the product functions more like a fixed-rate home equity loan.
For borrowers, he also expects the added liquidity to help lower borrowing costs for Non-QM, home equity, and other private-label products, citing the same dynamic that directs volume toward Fannie Mae: greater liquidity and standardization can reduce rates on a spread-adjusted basis.
Bottom Line
That promise is especially relevant as more mortgage and consumer-credit funding moves through private capital markets, where lenders may have access to large pools of capital but less certainty about whether that capital will remain available at predictable pricing. In non-agency lending, the question is not only whether investors want the assets today, but whether they will still want them when the loans are ready to be sold.
A prefunded securitization attempts to answer that concern by locking in the takeout before origination. Instead of waiting to see where the market lands after the loan is made, the originator has committed investor capital already in place. For lenders trying to scale products outside the agency box, that kind of funding certainty can matter as much as the price itself.
"I think this is more powerful in today's private credit backdrop,” Tannenbaum said. “Because people are concerned about financing consistency, the value of something like a prefunded transaction rings louder.”
