How Nima Ghamsari's Blend Labs prevented the US mortgage market meltdown

Thanks in no small part to Blend, the mortgage application, underwriting and closing process—once a weeks- or months-long slog of paperwork, emails, faxes and phone calls—can now be done almost entirely digitally. Blend saves an average of 7.3 days and $520 in operational costs per loan and allows a typical banker to close 14 mortgages a month, consultancy MarketWise Advisors estimates. Blend seamlessly integrates with CoreLogic for credit scores, Plaid to check on bank accounts and Google Maps for location data. This enables some banks to offer home hunters quick tentative mortgage approvals with a few mouse clicks—a huge plus in a white-hot housing market.

“We all got stressed last year with the crush of volume,” says Tom Wind, president of US Bank Home Mortgage, one of Blend’s largest customers. “We were able to serve more customers last year because of efficiencies we have with Blend.” In 2020, US Bank saw a 136 percent increase in mortgage fee revenue without having to increase staff.

Ghamsari and Blend have produced results by bucking convention on Sand Hill Road. Instead of seeking to disrupt the banks (a common fintech goal), he decided to retrofit them, charging for the service. His rationale: He 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, fresh off its banner year, Blend raised $300 million from blue-chip investors including Chase Coleman’s Tiger Global and Philippe Laffont’s Coatue Management at a $3.3 billion valuation, doubling its worth in a span of five months. In April, Blend filed confidential documents with the Securities and Exchange Commission for a possible initial public offering, which (given that Blend has an incentive-laden compensation structure similar to Tesla’s) could launch Ghamsari on the road to billionaire status—if Blend performs well. There are whispers that SPACs have shown interest in merging with Blend at double its latest valuation, though Ghamsari won’t comment.

Blend is a standout on this year’s Forbes’ Fintech 50, which celebrates private startups 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 six of last year’s picks, including crypto exchange Coinbase and Opendoor Technologies, which buys homes quickly for cash, have since gone public. Counting Blend, at least four current members of the Fintech 50 are considering listing on the public markets.

Yet few have had so much impact on ordinary folks’ lives. Since the end of World War II, owning a home has been at the center of the American Dream—as it was for Ghamsari’s own family. He moved to the US from Iran in 1987 when he was a year old, as his parents pursued graduate studies at the University of Michigan and then settled down in Cincinnati, where his dad taught math 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-down-payment mortgage and purchased a no-frills two-story home in Cincinnati for about $100,000. It was the rock their family prospered upon. They later became franchisees of a tutoring company, employing their brainy teenage son to grade and tutor students.

That wasn’t the only way the ambitious Ghamsari kept 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 cover tuition, but Ghamsari tried his hand at online poker to help pay for living expenses. Soon, when he wasn’t studying, he was playing day and night, with his winnings extending well into the six figures. “It was my first taste of something where, if I really put a lot of energy and effort into getting better, how good the outcomes could be over a very long run,” he says.

To make more time for poker, Ghamsari bought a gas-powered golf cart to get around Stanford’s sprawling 8,000-acre campus faster. “I really optimise my time around doing the things that I want to do. I try to make everything that I don’t want to do be as efficient—ideally nonexistent—as possible,’’ he explains. (Stealing 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.”)

With little regard for the brilliant undergraduate’s precious time, campus police impounded Ghamsari’s forbidden golf cart. “It was totally obnoxious for me to have, in retrospect,’’ he concedes. No matter. By the time he graduated with a computer science degree in 2008, he had bought an Aston Martin and been recruited by the ultra-secretive big-data startup Palantir Technologies, originally funded by the CIA’s venture arm. He was assigned to Palantir’s push to deploy its software inside America’s then-teetering big banks, whose patchwork, decades-old technology infrastructure gave them a poor grasp of their problematic mortgage exposures. Ghamsari saw up close the massive opportunity to disrupt banks—or to transform them.

“The insight Palantir had was that there was this immense growth in the amount of data being captured by organisations, but there was no way to harness that data for operational things,” he says. “You had to literally read pieces of paper, because all the data in the mortgage industry at the time was done in an analog way.”

Like other employees, Ghamsari had stock options and could have cashed in when Palantir eventually went public in 2020. Instead, in 2012, he and two other young colleagues (former quant trader Rosco Hill and engineer Eugene Marinelli) founded Blend together with Erin Collard, the head trader of billionaire Peter Thiel’s hedge fund, Clarium Capital, to bring new cloud-based technology to the earthbound banks. They gained early backing from Thiel and Max Levchin, now worth $1.4 billion thanks to his newly public fintech, Affirm, which allows people to pay for items in installments. The four founders first worked out of Ghamsari’s cramped San Francisco apartment, until his roommates complained. So they rented a Mission Bay apartment, which they used as offices, hauling sleeping bags into closets for naps during round-the-clock coding sessions.

At first, venture capitalists, focussed on fast, disruptive growth, were sceptical of Blend’s approach. Winning 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] won’t 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, large lenders like Bank of America and Wells Fargo started offloading hundreds of billions in mortgages to third-party servicers. Those servicers needed help managing their massive new portfolios and were more open to getting it from young tech wizards than banks might have been. Early Blend 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, Dan Gilbert, the Quicken Loans billionaire, launched Rocket Mortgage, which cut mortgage closing times from over 40 days to just a month—similar to what Blend was offering. “Every bank’s board 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 answers,” recalls Jeffrey Reitman, a partner at Blend investor Canapi Ventures.

Through the first half of 2017, Blend received just $67 million in outside funding. But after VCs saw it had won Wells Fargo, US Bank and mortgage originator Movement Mortgage as customers, they started calling. In August 2017, Blend raised $100 million at a half-billion-dollar valuation in a round led by Greylock with Emergence Capital, 8VC, Lightspeed Venture Partners and Nyca Partners.

With that cash, Ghamsari was able to add hundreds of smaller banks as customers. He also expanded functionality, giving borrowers the ability to upload documents and banks the ability to manage more of the closing process, as well as the applications process, digitally. In 2019, Blend raised a further $130 million and hired Tim Mayopoulos, the now 62-year-old former CEO of Fannie Mae, as its president, giving it instant credibility with banks and government-backed mortgage finance agencies, known in the trade as GSEs. Ghamsari “came and visited me in my office, and he was this scruffy guy in a black T-shirt’’, Mayopoulos recalls. “But it was clear that he had the same vision about how the system ought to work that I did: It should all be driven by reliable data that gets shared with all the key participants in the process, from the consumer to the lender to the ultimate holder of the credit risk [the GSEs].”

Blend isn’t stopping at mortgages—or banks. By 2019, it had launched paper-reducing software for homeowner’s insurance and home-equity and auto loans. It’s also enabling homebuilder Lennar to offer mortgages. In March, it agreed to acquire title-insurance and settlement company Title365 for $422 million, with the aim of integrating even more of the home closing 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, finance is going to be truly digital and proactive in real time,’’ he says. Consumers will open an app and get real-time recommendations, based on their individual financial picture, with Blend powering it all. If that happens, he adds, “This will be one of the biggest companies in the world.”