Can You Really Buy A House Without Selling Your Crypto? | Vishal Garg

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Nothing said on Empire is a recommendation to buy or sell any investments or products. This podcast is forformational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of Blockworks. Our hosts, guests, and the Blockworks team may hold positions in the companies, funds, or projects discussed. All right, everyone. Very excited about this. I've gotten to know Vashal who's the CEO and founder of Better. Uh really excited about this. So the the dream for this episode is we I want to start macro really talk about this pro like basically the mortgage industry as a whole then get into better and I think

you guys are the company that I I've talked to all the mortgage providers. You are the company that is the most innovative on two fronts which is AI and crypto/blockchain whatever I don't know how you refer to it. Maybe we can frame the problem or just the the big societal view of the mortgage industry in general and then that can guide us down. >> Okay, cool. Um I think if you start right from the top, there's about 15 trillion of mortgages out there in the United States. They're all funded. 95% of them are government guaranteed. Fanny, Freddy, FHA, VA. The remaining 5% are in the banking system which is effectively government guaranteed post the financial crisis. And so you have a government

guaranteed asset that's permeated throughout the financial system. It yields about 6 and a half%. And it's funded by deposits that are also government guaranteed 2 and a.5%. So you have about 400 basis points per year on $15 trillion, $600 billion a year >> of intermediation expense, government guaranteed deposits funding government guaranteed assets. And 300 basis points of that 400 basis points is lost to costs in the banking system. And those costs are people processes making 550 page PDFs.

>> So in America today with blockchain and tokenization and AI, we are living every day in a world where US households lose $450 billion a year to the PDF manufacturing process. >> And that's the mortgage industry as we know it. >> That is true. Yeah. >> Those are the margins. That's the margin of the mortgage. >> It's it's the it's a pedocracy, right? And 450 billion across a 100 million US households that own a home. Uh we're talking $4,500 per person per year.

>> I mean, it's massive. And so the goal is how can we use the latest technology to take this process of making these mortgage documents cheaper, faster, easier? Mhm. >> How can we use it to make it cleaner? How can we enable trust where post the financial crisis there has been nearly none? And in doing that, make home ownership more affordable and accessible for all Americans. >> What is um how should someone think about better business? Because I've, you know, I've been following you guys for a while, have heard, you know, spoke as as prep for this podcast, spoke to a couple of your investors, and um >> yeah, I'd be curious how you think about what it is today and what the evolution has looked like. Okay, so Better's

vision is to make home finance cheaper, faster, and easier to have the highest approval rate and the lowest interest rate across the full range of products that any American consumer can qualify to buy a home, refinance a home, or get home equity out of their home. And we're a long way into our journey here. We've been alive for about 10 years. We've been making mortgages. We've made 110 billion of them. And in that process, we have first started with machine learning to automate the process. Built a rules engine that matched investors, 45 different investors in the mortgage market with consumers directly. Then over the past 5 years, we use the learning data from creating these

mortgages to put an AI loan officer, an AI loan processor, and an AI loan underwriter in place that now automates and makes the process of making that mortgage of underwriting that mortgage into minutes into some from something that used to take 21 days or more. Um, >> and we're just getting started. We're almost reincarnated as the leading AI mortgage platform built on the learning data and the process mapping and the rich context graph that we created in our first iteration as a digital mortgage company.

>> And we think the AI mortgage business is going to be something that will be really meaningful for American consumers because it will help everyone afford to be part of the American dream of home ownership. >> Yeah. what what's the scale and scope of the business? However you look at it, loan volume, customer serves, market position origination. >> Yeah. So, between ourselves and our partners, we're at about uh a 88 8 billion annualized origination rate. Um so, a decent sized fintech. Um we are hoping to continue to double that for the foreseeable future year.

um that's up almost uh 2x from where we were the year before and 2x from there from the year before that. So uh we've now really been making progress. And I think the other big thing that's really important to remember about Better is our marginal cost to make a mortgage where it costs the mortgage industry $12,000 to make a mortgage, right? And almost $9,500 of that is labor cost. We're able to do that in under $2,000 today. And so we've got a competitive cost advantage that has gotten better and better with AI. And now we're not originating just only for ourselves, but we've opened up our platform to fintexs, to mortgage brokers, to incumbent mortgage companies. And that is

dramatically fueling our growth because now we're not only relying on better.com as a distribution channel. >> You started the business 2014 or >> 2014. >> 2014. Okay. So, you know, 12 years in, how has the um how has the mortgage space changed, right? Because I'm assuming it used to be a lot you go to Chase, you go to, you know, Bank of America, you go to Wells, and now, you know, I see ads on every sporting event for Rocket Mortgage, SoFi, I don't know if you're doing the TV ads as well, you know, but um >> yeah, just maybe tell us how the the space has progressed.

>> So, so post the financial crisis, uh coming out of it in 2014, Wells Fargo was the largest originator of mortgages in the country. uh Chase was big, a bunch of Bank of America was big. Over the past 10 years, more and more of those banks got out of the mortgage business uh because of the ups and downs in the mortgage cycle. Um and also because the cost to manufacture mortgages for a bank was about $15,000 because of the compliance and the pedocracy that got created after the global financial crisis. And and did so many of them get got they got caught on the wrong side of low interest rates or that didn't have anything to do with >> No, that when No, it didn't have anything. It was just their cost of

making a mortgage. >> Interesting. >> It you know, if you were trying to get a mortgage even today, you call up like Bank of America or Chase, they'll take you like two months to get that mortgage. >> I know. I did it with Wells. Yeah. And they actually treated me like I had no assets because it was all crypto and uh this was 20 I forget when 2020 2021. Yeah. >> Yeah. I know. I it's it's a very it's the bank origination process for a mortgage is like the internet didn't exist. >> Yeah. >> Right. And so those people >> uh they've lost ground to people like Rocket to Better to Lone Depot to UWM, the non-bank mortgage lenders who have been able to use technology to speed up the process. Mhm.

>> That being said, even at the very large non-bank lenders, it's costing them 12- $13,000 to make a mortgage because they still run a linear processing platform. So, you have a loan officer who passes the loan on to a processor who passes the loan on to a underwriter who passes the loan on to a closer then passes the loan on to a funer who then passes the loan on to a QC person and so on and so forth. And each one of these people is rechecking the work that the last person did. and then either finding issues or coming back. And when you go as through the process as a consumer, you're like, "Wait, I just dealt with this other person. Now I'm being passed on to this person, and this person's asking me all the same questions over again, and they're asking me for this other minor

nit in a document. Like, I qualify either way. Like, what is your problem?" And that's really bad. And this is why actually this is the industry most ripe for disruption by AI because unlike even other forms of consumer credit where you have uh a black box where you have instant underwriting here everything is driven by rules that are preset by the government sponsored enterprises Fanny and Freddy or by the FHAVA. So what you're doing with the um with AI is not actually in the um underwriting layer.

It's just in the reasoning, communication and orchestration layer >> and that's entirely referenceable and you can train these the AI to effectively do all of it which is I think is going to be really interesting for the industry to to kind of deal with because you have 550,000 licensed loan officers in this country. um you have hundreds of thousands of processors and underwriters and they will tell you the bulk of what they do every day is stare and compare and you know that that that that's that that's a just a thought but like the amount of consumer surplus that can be unearthed the amount of value that can be given to a consumer when you stop like selling and just collecting data and looking at it and and instead like start to help

people analyze their full finances to like be the debt adviser for people to do all that there's real value you can create for American consumer Yeah. Uh one or two more questions about your business model. What is the how do you make money? >> Uh we make money because by two in two ways. The first way is our direct to consumer business which is our traditional business. We make a mortgage. We acquire consumer. Uh we process the loan, we underwrite the loan, we fund the loan and all of that costs us about uh $6,000 to do. And then >> instead of the 15,000 that it cost us. >> Exactly. Yeah. Because our customer acquisition costs are still quite high.

They're like about 4,000 of the $6,000. Um, so it cost us $6,000 to do and then we sell that loan to an investor for $8,500. >> Got it. >> So if you've got a $400,000 mortgage, it'll cost us $6,000 to make it and then we'll sell that loan to an investor for like a 2% premium. So we'll sell it for $8,000 and we'll make $2,000. So that's our direct to consumer business. >> Same applies to home equity lines of credit where the math is about the same. Um the second now what we've got is a platform business where we sell mortgage in a box to banks to fintexs to mortgage brokers where they bring the customer.

So we don't have that customer acquisition cost upfront. They bring the customer and then they pay us for processing uh underwriting closing the mortgage and getting access to our investor network. And so in those cases, we typically make anywhere between $2,000 to $4,000 depending on how many of our services they're using. And there we also try to make about $2,000 alone in contribution margin. >> This is like, you know, is this what you did with Coinbase or Finance of America? >> That's right. Yeah. So, so we've got Credit Karma, we've got Coinbase, we've got Finance of America, we've got Lending Club, we've got a whole bunch of large FinTechs and incumbent mortgage companies that are using our platform to uh originate mortgages.

>> Yeah. Do you have a thought on a you know, you fast forward a couple years into the future, do you want to how how important is it to own the customer? >> Actually, I don't think it's important to own the customer. I think it's important to change the industry. I think it's important to make the world we want to live in which is um you know and and I think >> there was a time when we thought better.com could actually reach all consumers everywhere because all consumers were migrating to the internet. What we learned over the past couple of years and particularly with respect to purchase mortgages is people want handholding and actually what AI enables the handholder the last mile the guy on the ground right walking you from open house to open house to do is actually be way more efficient. So now

we want to empower the last mile to provide exceptional service to consumers. >> Yeah. Uh can you you know relevant to this is the chat GBT. Yes. Thing. Yeah. >> Is this is it live? I saw I saw a couple headlines. Yeah, it's live. And uh we have mortgage brokers around the country who are showing up at open houses. And in the old days, they'd take your information and then at the end of the day, they'd go after the open house, they'd go to their office and they would then say, "Hey, you can afford to buy this house. Here's your pre-approval." >> Right? Now they're doing it right there. Just talking to, you know, the Tin Man app and saying, "Hey, my customer's got this and this and this, this and these attributes. What's the best rate we can quote them? How much is this house going

to cost you per month?" >> Interesting. >> People in America don't buy houses. I mean, you know, on the coasts and some of the fancy places that we are in right on this island in Manhattan, people buy houses for X dollars and Y dollars. But the regular person in Peoria, Illinois is buying a house for not for $300,000, but they're buying a house for $30,000 down and $2,200 a month. >> Yep. >> And that's what they need to know. They need to translate the price you see on Zillow >> to what is the amount of money that I need to come up with this to stop being a renter? How much down? And then what's my monthly nut?

>> So the product, the Chad GBT product, the partnership is for more is for the brokers. It's for brokers. It's for fintex. We designed it so that any bank could get back in the mortgage business. All these banks post some of the rec cap changes that are taking place where they're rolling back some of the stuff that happened post the global financial crisis. Mortgages are a really attractive asset again. So, we got 6,000 banks in this country that want to get back into the mortgage business, but do they want to go hire loan officers and processors and underwriters? No. Do they want to get put a guy like in their branch? No. What they want to do is be able to get anybody in the bank to be able to say, "Hi, sir. Yes, can I can help you?" Like, "Can you tell me a

little bit of these things?" Tell those things. Have like that typed into this chat GPT tin man app. And then have it come back with an approval nearly instantly. Yeah. >> And now that's a delightful thing. And it's completely compliant. And it's foolproof. So you don't have to spend, >> this is the amazing thing with AI. You go from all of the software that's been created in the last 50 years which is all uh specialist labor driven software where you uh as a person have to like understand learn get trained on the software and all that and you know now you go to no interface you can just talk to it talk about your problem it'll ask the questions that are relevant and it'll give you the answer and that's

magical yeah it's magical for ordinary people >> I agree I agree um Do you I mean when what do you think the timeline is like to just get a mortgage through chat or through Claude? >> Oh, you can do it right now. >> You can do it right now. >> Right now on better.com you can go all the way through lock on by just talking to it >> or by chatting with it and we're working on lock to fund right now. It's still in a task frame based framework but we're working on getting that so that the entire thing can be done entirely. >> Could you but you're still on the better website right? Can you do it on the inside of Chad GBT or >> we're working with Chat GBT to get that live? We're working with them. You know, there's like there's like a bunch of

security stuff, right? Like social security numbers, pay stubs, things like that. So, we have to create uh ways to collect >> really rich personal financial information from consumers without it being given to the LLM models. >> And so, we're trying to create these sort of wormholes where you can upload stuff and, you know, give it back. But what was really interesting is, you know, my kid, he's given Gemini permission to everything, his Gmail, his Google Drive, his YouTube history. And so there are people out there like just pressing the yes button. And so if you have like say your pay stops and your tax return in your Google Drive, we should be able to get it for you. And I mean, they rolled out finance, right?

And yeah, it took me two days and I was like, "Ah, should I connect? Should I click click click?" >> Oh, you you did it the whole I did it with I did it with like three of my accounts to see how good it was cuz I also use this tool called Monarch that like tracks everything and then I was like I wonder if chat is better than so anyways. Yeah. >> I think that's really clever. I mean what they've done with plaid like eventually most >> so if you think about what gets disrupted by AI right and this is the thing like I think financial services people don't get you have AI on the front and tokens on the back. You money is the asset money is the asset class that gets most disrupted. It's not like your Door Dash delivery that comes to

you. It's the fact that now each and every one of us can have the same power as like the most >> excellent private wealth management guy at Goldman Sachs. >> Yeah. >> And also that guy works 24/7, >> right? And it can just do it for you every day. It can say just like you know on Bettermental Wealthfront they like optimize your portfolio daily. every day. It could just be like, "Hey, I I see you have $7,000 in your bank account, but you're paying interest on this $1,700 of credit cards. Why don't we pay that down and then you can draw it later when you, you know, want to get something else?"

>> And people don't even think about that. People pay credit cards only when it comes due. But you know what? You can pay your credit card any time of the day, any time of the month, >> and not pay interest when you have money sitting in your checking account. So, if you plan to pay at the end of the month, might as well pay early. And people have not figured that out. And I think you know most financial services today has taken the benefits of the internet and absorbed it for themselves. Yeah. >> In the form of a cheaper distribution and easier access and lower credit risk, >> but they've created friction that's maintained the margins.

>> Yeah. >> So if you think about it, credit card interest rates today at 36% are the same as they were when City Bank rolled out credit cards in the 1980s. Well, you've had all this technology, all the savings, but the rates are the same, right? Shouldn't the rates have come down? No. Uh, same thing. Mortgages, >> same thing on, you know, auto loans, student loans, all of these things. The rates are the same. >> Yeah. >> Costs have come down. >> Financial services companies are more profitable than ever, >> but the moat is really is just coming down. And I think, you know, tokenization really changes that even further.

>> How have you had to uh adjust how the company runs now that you have these two business lines, right? You have the direct and then you have the platform and partnership. >> I think I think we've always run the company with a no customer left behind ethos. So I always when I first started any customer could email me uh vgb better.com. They get a personalized email from me. Hey that's talking about like their circumstances and I respond and I have a team that responds on my behalf like if when I'm sleeping. So um that ethos of treating the customer really really really well >> right expands to like our partners. So now we treat the partners customer really really really well >> and there's nothing that keeps and grows your partnerships than treating your

partners' customers really really well and they are being happy and so that is what has been fueling the growth of our partnership business and our platform business. We're not buying ads for the platform business. We're not like uh you know out there like other than at conferences doing demos. So we're kind of like this super startup inside where we do demos and our existing customers tell us about their >> tell talk to us about other customers. We don't really have a massive B2B sales motion but you know the business is already now over 50% of revenue.

>> So when you're doing these deals Coinbase Open AI who's selling who's doing is that you directly doing that deal? I I try to do it directly and then I have a team of three people with with me. Yeah. And we just we swarm. >> Yeah. >> We swarm. We do. We demonstrate. I think that's the difference. We swarm, >> we do, and then we demonstrate. Like we're up and running with the partner, showing them what their whole customer journey is going to look like within a week of meeting them. >> Yeah. >> And and you know, speed wins, right? Like I'm competing against other people who are like, >> you know, >> little >> asking them to come to Detroit.

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notes to find out more. >> Uh let's talk crypto. So there's a bunch bunch of angles that we could go here, right? There's the um >> the consumer side borrowing against crypto, which is what you did with Coinbase. There's also DeFi borrowing against crypto which is what you're doing with you know Maker or I guess you know Sky. >> Um >> maybe we could start with the with uh with the the the former which is >> can you walk us through the um you guys did this Fanny you know the first I think it was the first Fanny May eligible Bitcoin back mortgage funded with your Coinbase account. Yeah.

>> Walk me through like how that came to be and what you maybe why that's so actually important. >> Yeah. So this is a concept I've wanted to do for about 12 years now. So, when I was going to buy my place, um I had made some good investments during the credit crisis and we were going to have to put 20% down on this jumbo loan uh from a major bank here in New York. And I was like, I'm going to have to sell this stuff. I'm going to have this capital gains. Why can't I just pledge this? It's liquid just like cash instead of pledging this down payment. And they were like, no, not having it. Not at all. The broker wouldn't even show me places until I showed him cash in my bank account >> equivalent to like 20% of whatever the price point I wanted to buy. Yeah. And

>> I told you I had this with Wells. Yeah. I literally was I had the Gemini team, which is where my Bitcoin was held at the time, get on with the Wells manager of the manager of the manager trying to show them that Bitcoin is a liquid market and it didn't work. >> No. No. They wanted you to liquidate it. And it's like >> why? because they're spending and you realize well if stock prices go up and down and like therefore your buying power changes the real estate broker is not getting the same commission. So they want you to like be they want to be fully certain. So anyway so I said that's crazy. Um we first tried it again in 2020 2021 we did a deal with my friend Henry Ward at Carta where he was doing something called Carta X and it was a private it was a exchange where

companies could list their private shares. >> I remember this. And when you think about it, as a CEO of a company that was at that time about to go public, most of my employees, you know, immediately they want to sell shares so they can buy a house. And like I said, well, what if you don't want to I don't want them to sell their shares. Why can't they just pledge their shares to get a mortgage? So, we tried it there and that worked for a while and then, you know, Carta decided not to like really move forward with Cart. So like kind of died there and then it came back because I started reading about the changes in the administration started understanding like so many people hold Bitcoin and USDC and Coinbase had worked out on Coinbase custody the first time you can do a

triparty pledge yeah >> via a smart contract. So when I wanted to do this, even once better had gone public with like my guy Goldman Sachs, he was like, "Well, it's going to cost 20 grand. You're going to pledge your stock. We're going to have to move all the stock that we're pledging into a different account." All that because not one single broker in America on like can actually do a stock single stock pledge. They have to do it in an account. You have only account pledge agreements and the brokers don't like doing those because they'd rather lend you money on margin. It's very profitable to lend you money on margin. And so they didn't really want to do that. So reached out to Coinbase that hey why don't we take whatever is tokenized and in the beginning let's start with Bitcoin and

USDC those are very large tokenized assets on Coinbase users and enable them to enter into a smart contract on coinbased custody where they can pledge their Bitcoin or USDC and use it in lie of a mor of of of down payment for a mortgage and then we went to Fanny May and we said well look we can open up home ownership to this very large constituent of consumers that own tokenized assets in Bitcoin at USDC. But then eventually all tokenized assets, if you think about it, >> there's5 trillion dollars of household savings and checking in savings accounts. There's 35 trillion of household savings in stocks, bonds, digital assets.

>> There's and when you if you think about what's the biggest impediment that households have today to buying a home, they're already paying their rent. They're basically paying their landlord's mortgage, >> right? >> The biggest impediment is actually being able to come up with the money for down payment, which is hard. If you're 32, 35, you've got your student loans you're paying off. You might have your grad school loans, you might have other stuff, your expenses. So, it's really hard to build that savings buffer. And if you do have that savings buffer, you haven't invested in the market. You don't want to take it out of the market or out of crypto and then sell it all, incur capital gains to go buy a house.

So, what if we made that process super easy, which is what we did. And now you can simply go on Coinbase, pledge your crypto. It basically shows up as if you've made a down payment. Get a pre-approval letter from Better. Go find the house you want to buy, come back, transact it, >> and show up at the closing table, and the only person writing a check is Better, not you. >> Interesting. >> How many checks did you write when you were at the closing table with your mortgage? >> Yeah. Yeah. Too many. Yeah. [laughter] Too many. What uh what's there are other crypto mortgage products on the market, right? So, what separates this from those?

>> Um they have margin call features. They uh require you to basically pledge 100% of the home value in crypto. >> Yeah. >> Right. Here you're you're pledging, you know, a percentage of your down payment amount. >> Uh >> and you can't get margin called >> and there's no margin calls. There's nothing there. you know, the rate is really great because it's not a 9 10 11% rate as it is with other crypto loans, uh, of size. Um, and the duration 30 years, it's fixed. So, the couple that bought a house in Michigan, they got a 6.5% rate, their monthly cost uh on their home for 100% financed home, um, if the Bitcoin appreciates more than 8% a year that they pledged, the Bitcoin

paid for the house. Hm. >> How is there no margin call? >> Uh because we don't margin call you on your house when it goes up and down in price. >> Yeah. Interesting. >> As long as you pay your mortgage on time, you're good to go. >> Yeah. Interesting. >> And what we found actually investing >> Wait, so what happens if Bitcoin but you know a house doesn't >> go to zero. >> Okay. >> Bitcoin can go to zero. You're as long as you're paying your mortgage on time, you're advertising PNI, you're good. >> Then you're fine. Interesting. Interesting. uh you know when when uh Mike and I first started building block works there was this whole idea of um you know moving real estate onto the blockchain.

>> Yes. >> And you know it kind of there was a company called Harbor and there was all these um all these securitization companies in 2018 and 2019 and tokenizing real estate and it turned out actually tokenization probably made more sense for the highly liquid assets. Tokenizing something doesn't make something that's illquid liquid right. What do you think of uh you have like an updated thesis on like tokenizing real estate >> or is it more the tokenizing of a mortgage that makes sense? >> I think the tokenization of a mortgage makes a lot more sense because this is a market that trades 180 billion a day. >> Yeah. Yeah.

>> Right. And so taking friction costs out of transactions that happen recurring uh is a lot more valuable than taking friction costs out of h transactions that happen you know how many people are buying and selling and you know tokenizing their house. Yeah. Um I do think that there is something to be said which is why should I own 100% of my house? >> Yeah. >> Why can't I own 62% of my house and pay rent to the other 38% of the people? Like I think that that's the conceptual basis behind >> tokenizing houses. But >> I think we're a long way away from that.

>> If you think about it also people think just because you put something on an exchange it will trade. But how many public companies are out there that like don't trade much at all? >> Yeah. trade less than a million a day. >> Yeah. Yeah. >> And so, you know, you can have a public company that's like $200 million company that trades 100, you know, a million dollars or less a day. And so, I think um tokenization of real estate doesn't make sense, but tokenization of a standardized product like a Fanny May, >> right, >> mortgage or Freddy Mack mortgage, that makes a ton of sense. And then what has been really interesting and encouraging is the CEO and the presidents of Fanny May and the new administration are so encouraging about the idea of not only enabling more people to be able to

afford a home using a a token back mortgage, but then also of the tokenization of those mortgages themselves because Fanny Freddy to date have mostly sold their bonds to institutional investors. You as a consumer >> couldn't go out and buy a share of a Fanny May mortgage backed by a house guaranteed by Fanny May. >> Right. Right. Right. >> And now you can >> and you or now you will soon be able to. You will soon be able to. >> That's right. Um you guys partnered with uh Sky.

>> Yes. >> And you know our you know our friends at Framework. There's the uh >> the way I understand is you guys partnered with Sky to basically secure access to a $500 million credit line. >> That's right. that is backed by tokenized mortgages. >> That's correct. >> Can you Yeah, walk us through it. >> Um, if we think about, you know, and again, maybe I'm going to ruffle [snorts] some feathers here, but stablecoin issuers today, they're buying short duration treasuries. And if you think about that, that makes that was a really good thing for stable coin buyers to invest in when rates were four and a half% short duration rates.

As rates come down, the yields become less and less attractive relative to keeping your money in the bank. >> And the surplus that they have, they have to invest in things that are great. And so if you think about like duration, the Fanny May Freddy Mack mortgage is possibly the single best long duration asset out there because it's a fixed rate mortgage. Today you can buy a 6 and a half% rate mortgage guaranteed by the US government or USGSE, right? and you earn that for a 30-year period of time. Um, now, yes, you have exposed to prepayment risk, but if you're a regular person, if you know, I borrow money from you and I pay it back early, what do you say? Oh, no, no, no, don't don't give me money.

>> No, you're happy to get your money back early. So, so institutions care about prepayment in the context of investment risk, but individuals are actually totally comfortable with prepayment risk uh as as a natural thesis. So I think it's an amazing product to put in tokenized format and then distribute to consumers and basically will enable you know consumers to effectively have their own little bank. >> Yeah. Yeah. Yeah. >> Yeah. Instead and be on the other side like instead of getting paid 2 and a half%. >> I can get paid what Chase gets paid six and a half%. Right. Right. >> Like Chase just takes my deposit and puts it in Fanny May Mortgages. Now I can do the same.

>> Yeah. Did you guys do any math on uh how much the cost of capital comes down for you guys by accessing the capital through Sky instead of the myriad of whatever that process looks like? >> I I think short duration capital from Sky brings our cost of capital down by 25 basis points. Long duration capital from Sky and from tokenizing long-term brings the cost of capital down by 100 basis points. That means really wow >> and and that means you know we can take mortgage rates down >> by 50 to 100 basis points. It's huge. Yeah. We can improve affordability, you know, by $1,000 a month.

>> Interesting. Are you doing that yet? Or do you have a sense of Okay. Okay. I mean, look, if you can take it down 100 bs then >> Yeah, we That's our goal. >> Uh Ah, that's interesting. Is it live? >> Uh, no. The sky facility is not live. >> The sky facility is not live. Interesting. So, wait. And this 100. So, that that's just because you get to remove all these intermediaries. >> Yes. >> Yeah. Yeah. Yeah. >> Yeah. No, there's um it's interesting because there's a publicly traded ETF called MBB. Um it owns about 40 billion of agency mortgages uh agency FHAVA mortgages, government guaranteed mortgages and the net yield on that I saw was 4.1%.

>> And the underlying assets, right, today's mortgage is right 6%. I was like, where does all this money go? >> Yeah. Yeah. Yeah. >> Right. And it's like the multiple layers like Fanny May is selling you know bonds there's a securization then those bonds are getting bought by some fund exactly and so on and so forth. So I mean again the multiple layers of financial intermediation that you relieve each one 10 bits 20 bits at a time by like going from consumer to capital and cutting all that out that is that and honestly like I've been doing fintech for 26 years the original promise of P2P that was the pro tokenization brings the original promise of P2P finance >> now out there >> yeah who possible

>> who does sky replace in this sense >> or who is sky competing against >> black rockck >> sky is competing competing as Black Rockck in the sense >> Black Rockck. >> You know, it's so funny because uh how long have you been doing fintech? You said >> 26 years. >> 26 years. >> Yeah. You know, this is year nine of black works, right? I've been in crypto and you know, for a while it was like the crypto zealots against the world. Yeah. And now for the first time the you know the crypto folks are the the most pessimistic on crypto because we've all you know everyone in crypto has been like you know the tokens are all down and the fintech and the institutional people are more excited about crypto and blockchain than ever. So, it's just interesting hearing your excitement for this stuff.

>> Oh my god. You know why? Cuz I think it's um it's like in the first iteration of the internet uh when um people built all these companies and you know the zealots in Silicon Valley that from 1995 to 2000 they were so high on it. >> Then 20203 it was a apocalypse. Around 2003 people were like wow this stuff actually works now. Get a little Google IPO stuff's actually working. It's delivering user utility. It's not a dream. The pipes are laid and you know obviously the people who lay the pipes sometimes they don't they don't last.

Yeah. >> But like the work is done and now that the pipes are laid there's there's amazing utility to get unlocked. >> Yeah. Can we go one level deeper there? Like what would you say to the the crypto person who's been you know they've been in the industry for 10 years. They're a little depressed on you know their tokens are down 90%. They're trying to find a little bit of optimism for what the you know the industry is going to look like for the next you know 10 years. What's your message to them? >> I think the biggest thing is is if it drives consumer utility >> and it has distribution, it will be very valuable.

>> Yeah. >> And I think like the biggest challenge so far has been well which of these coins actually does something for the user? >> Which of these protocols actually does something for the user? Now, some of these, you know, lending protocols, if they make something where, you know, effectively, not to be, if you show up with collateral and they give you a loan and it's instantly priced and it's run on a smart contract, you don't have the traditional framework of like having to foreclose on the asset and so on and so forth. >> That's super valuable. >> Yeah. Yeah.

>> Like you've suddenly replaced like this entire layer of people who do loans like in a physical environment. You can do, you know, you could have one guy that's doing pawn shop and other guy that's doing anything. Like anything that can be tokenized can then therefore be lent against and be lent against without the physicality of all of it and the [ __ ] Like that's really cool. Some of these protocols are going to be worth a lot of money. Those tokens are going to be worth a lot of money. >> Yeah, 100%. What is your um what's your vision for as all you know stocks, bonds currencies commodities all capital markets come on chain, you have these tokenized assets. What's your vision for um yeah, I guess enabling all of these tokenized assets to be pledged for mortgages.

>> Uh that's our goal. >> That's the goal. >> That's the goal. >> Yeah, >> that's the goal. Like we're starting with Bitcoin and USDC. Uh the next step is conversations that are taking place with all the large ETFs, the like, you know, the S&P 500 guys, all that, >> top 100 public companies in America. Yeah. You know, imagine you're an employee at a public company. You're an employee at Amazon and you get paid in RSUs and you have to sell them to like what's the point? Like you're paying people in stock and the first thing that they want to buy is a house. Once they've got enough stock, they're selling it. So imagine they can just you're an employee at XYZ company at SpaceX at Amazon. You can just pledge your stock >> to go buy a house >> and keep the upside of the stock and you

know benefit from having the rent be the same for the next 30 years. Like that's really cool. >> Yeah. 100%. And the fact that the USGS sees that Fanny and Freddy are on board with this, right? Like there's validation that this is this is something that is good. >> Yeah. >> Uh flipping to the or any anything else on crypto and blockchain. >> I'm so excited. This is >> Yeah. >> tookenization is the realization of P2P finance in the original way that it was conceived 15 plus years ago and has not yet been able to put in place.

>> Yeah. Amazing. I love that. What is uh what is fundamentally broken in the mortgage process that so we walk through the what you know what blockchain solves. What does AI solve here >> more on the underwriting side? >> What AI solves is the uniform application of the rules. >> Yeah. >> Uh minus the expert labor and the biases and lack of knowledge of the expert labor. >> And the expert labor layer in mortgage is extremely expensive. average mortgage underwriter gets paid $210,000. There's no way that all of them remember all 45 investors guidelines of 800 pages. Do you I mean like that would be like remembering the encyclopedia bratannica and you know like how many humans remember the encyclopedia bratannica

front to back? No way. So the AI is able to do that and so therefore it improves the approval rate. >> The AI is able to recommend and do math in its head instantly. So it tells you, hey, if you pay off this loan, this loan, this loan, it'll increase your credit score, which will lower your mortgage rate by the same amount as the loan you just paid off. So that should be really great. You should do that. Oh, and then the last thing is unlike most humans, the AI will say, I can just do it for you. Just tell me yes. And so I think that's the the value of the implementation of AI is really um enabling consumers to have access to the top 1% of the sales people, processors,

underwriters and their skills. But for the other 99% of Americans that don't have taxes. >> Yeah. It democratizes access to financial advice and financial engineering. >> Do you have sales people at your company? Do you have like sales broker brokers? We do. >> And will they all be, you know, they're the question they're thinking >> they're the best ones >> are embracing it. They're making AI twins of themselves. I think if you watch our um >> earnings call from November, we literally have one Ryan Grant who's the top loan officer in Orange County uh in California and he now has an AI digital twin. Hm.

>> Interesting. >> That AI digital twin has all of his colloquialisms, all of his imp lessons, everything that he knows and has the has knows all the underwriting guidelines across all 45 investors and can do math instantly. >> Yeah. Yeah. Do you think about this increasing your top line or de or or or basically are you going to grow AI, crypto, all these things? Is it making the business more efficient or it's actually increasing the revenue? >> It's both. It's increasing the revenue because we're capturing more surface area. We're talking to more customers. >> We're able to be open 247 when other people are not.

>> Um, and then on the flip side, it's lowering our expenses because it's allowing us to have the people who are great at working with consumers have 10x leverage. >> Interesting. >> Yeah. >> Yeah. What's the uh what's the way you're spending your time right now? Um my biggest thing is path to profitability. >> Yeah. >> Um you know we've had >> how close >> we've had four really tough years. >> Yeah. Yeah. >> Uh hey you guys had a journey. >> Yeah. Coming off the refi boom. >> Yeah. >> Reconfiguring the company continuing to invest in the tech, continuing to invest in the AI and you know we've publicly been out there saying that we're going to be breaking even on a adjusted EVA basis by September. And so I'm pounding away at that. you know, pretty confident

that we're going to be able to make that happen. Um, >> two two months, two or three months. >> Months. Yeah. Yeah. And, um, >> could you have done that without blockchain and without AI? >> Um, I think we could do it without blockchain. >> Yeah. >> But we can't do it without AI. >> Can't do it without AI. >> Can't do it without AI. We have to be all in on AI. >> Yeah. >> All in. Right. Um, I mean, one of like the very famous Silicon Valley VCs three years ago told me, Shaw, like the difference between any company and its peers and any CEO and its peers is going to be determined by how hard you can force AI to down every level in your organization. Because the

truth is most of the people in your company don't want it. M >> most of the people because it's hugely disruptive to their day. It's hugely disruptive to their workforce. It's usually disruptive to their like personal sense of meaning and what they do >> because it's able to do it better than they are. So you have to adapt and you have to adapt really quickly. And so we really pushed on that. And so I think you know the deep knowledge base, the knowledge graph, all of the stuff that we collected from 2016 to 2021 helped us implement AI in a way that no one else in the mortgage industry has. And that's why I think, you know, we're going to be able to get to our goal. So that's number one goal. Number two is finding more partners, doing more interesting

things with tokenization, with AI, and um meeting more customers who have millions of customers, more fintexs who want to be in the mortgage and home equity business. >> Yeah. What do you think uh the street misunderstands about your business? >> So, truthfully, I think there's a couple things, right? One, I think the street views us as an online version of a traditional mortgage business. and a traditional refinance mortgage business. And so our stock price goes up or down based on if interest rates go up or down. And and I think they just view us two um since we've lost money for four years, I think the street has a very high discount on whether we're going to be able to make money unless rates come

down. And so it views us almost as a call option on rates uh coming down. And I think the street misses the fundamental transformation that's taken place in the business from being a direct to consumer brand that did really well during the pandemic to now an AI platform that's modernizing the entire mortgage and home equity business. And I think you know if this was a private company it would trade at a very different valuation than what it does today. It trades at like something like two two and a half times current run rate sales versus like you know what the AI companies trade at. Um but you know again that's an opportunity for people.

I've been buying the stock as you know and probably have seen and uh you know I think there's just uh there's an appreciation that will come and it will take a while. >> Yeah. Yeah. What are the if uh you know there are some founders listening to this who are thinking about taking their company public right there's a lot of you know crypto founders who listen to this. They've you know series D stage you know the last round was at a couple billion. They're looking at the public markets getting a little excited. um maybe where there's a lull right now because all the money's been sucked into >> SpaceX and open AI and stuff, but you know, maybe you know, 2027 they're looking at the markets. What have you learned about running a public company?

>> Um I think you should be mentally prepared for things to go slower. >> Yeah. >> Running a public company, you should be really careful of the new board members that you put on because, you know, public company board directors are very different than private company board directors. Private company board directors are typically your venture capitalists who want to maximize outcomes. >> Supportive. Yeah. >> Supportive maximizing outcomes. Public company directors are typically like loss minimizing. Yep. You know, uh you have to be very careful about who you put on and you know learned those lessons. Um and then three like the employee base is going to change.

>> So many of your superstars are going to take the you know the layer below you are going to take that money that they've now got as a public stock and probably leave. So, do you have, you know, what's the layer below them and the layer below them? And, you know, if I had to do it over again, what I would have done is really make sure like the layer below them and the layer below them was amazing. >> Amazing. Like, if I had an A as like a number two, I would have like wanted an A+ as a number two.1. Yeah. >> Right. And um I think that's probably like the single biggest lesson.

>> Interesting. >> I would take. >> Interesting. How many employees do you guys have today? um >> not count not counting the broker and all those things right like in corporate it's like 150 but altogether with the brokers and the processors and the people in India doing the uh data entry it's like about a thousand >> okay but so it's like 150 core yeah >> over a thousand >> uh 5 years from now you have more or less employees >> I think depends on the surface area >> um that requires data labeling but outside of the data labeling Yeah.

>> And data learning, I think we'll have way less employees. >> Way less employees. Yeah. >> And on the data labeling side, so that's a huge business in and of itself that can be monetized. You don't monetize it because you monetize it for your own product. That's right. But there are companies like Meror and all. I mean, there's these huge, you know, I was with a guy had dinner three night on Saturday night, >> $50 million deal, just that deal data labeling for, you know, one of the big companies. >> Uh, have you ever thought about spinning that off? >> [gasps] >> probably should have done it a long time ago. [laughter] >> Yeah.

>> But no, I mean because it's so bespoke. Yeah. >> To this particular process. I think it's actually one of the core modes. >> Yeah. >> That we sat around labeling everything when other people just let it all die in some 550 page PDF that they ship off to a custodian. And now we have this moat and it just keeps expanding. And what's really interesting is I tell people like there's two assets that are created every single time we make a mortgage. one is a financial asset and the second is the context graph y >> that we've just created and and all of the data that we've just cleansed across like the person and the asset and all of those things and eventually we'll have all houses in America having gone through our clean data labeling exercise all appraisals in America having gone

through that all consumers in America and that will then allow people to be able to finance instantly for anything. >> Yeah. If you guys are wildly successful and you achieve all this, you are the what? You are the largest mortgage provider in the US in the world, you are the >> what are the strike for loans? >> Stripe for loans. That's great. Cool. Uh so that means the platform business becomes actually bigger than the direct business is where you see things going. >> Interesting. >> I think better.com is a great brand, but it's not going to be better than all the other brands combined together, >> right? Is there uh Yeah. Interesting. That's cool. I like that. Um, anything that we missed that we didn't cover?

>> No, thanks. This has been really great. >> Yeah, good. Michelle, congrats on everything, man. We uh before the before the episode, I called a bunch of your investors and said, "What what do I need to know about it? What do I need?" And uh yeah, you have an excited group backing you. So, >> thank you so much. >> Yeah, congrats on everything. >> Just getting started. >> Good. All right, man. Be well. >> Thanks.