Cloud banking software provider Blend posted double-digit revenue growth during the second quarter as it added new mortgage customers like Mr. Cooper and KeyBank, while deepening relationships with existing customers including Opendoor and Fairway Independent Mortgage.

Blend, which also refers homebuyers to partner real estate agents, said it now provides services to 32 of the top 100 U.S. financial services firms, and 28 of the top 100 U.S. non-bank mortgage lenders.

The San Francisco-based software developer reported second quarter revenue of $32.1 million, up 46 percent from a year ago. With expenses also rising by 75 percent, to $59.3 million, Blend posted a $39.6 million loss from operations, up 90 percent from the second quarter of 2020.

Blend, which announced an agreement in March to acquire a national title insurance and settlement services provider, Title365, from Mr. Cooper Group for $422 million, said the deal closed on June 30. That was too late to contribute to second quarter revenue, but “integration work is well underway,” the company said.

IPO raised $360 million

It was Blend’s first quarterly report to investors since going public last month, raising about $360 million in a July 16 initial public offering of 20 million shares at $18 each.

Blend shares, which trade as BLND on the New York Stock Exchange, closed at $18.05 Friday, down 9 percent from when earnings were released after Thursday’s closing bell. Since the IPO, Blend’s price per share has ranged from $16.05 to a high of $21.04.

“In the second quarter we continued to expand our customer base and grow within existing customers, closed a large acquisition that will accelerate the advancement of our platform, and executed a successful IPO with strong investor interest and support,” Nima Ghamsari, Blend’s co-founder, head executive, and chairman of the board, said in a statement.

Marketplaces provide referrals to real estate agents, settlement services

Designed to provide an “end-to-end consumer journey for any banking product,” Blend says its cloud banking platform is used by more than 300 clients, including Wells Fargo and U.S. Bank, to process more than $5 billion in loans a day.

The platform relies on an ecosystem of technology, data and service providers, including more than 1,200 real estate agents, 24 insurance carriers, and more than 900 settlement services providers. Blend says the platform can be integrated with offerings from 45 technology vendors including CRM platforms, loan originations systems, and pricing and product engines.

Consumers using Blend’s platform can shop for real estate agents, insurance carriers, and other service providers through integrated marketplaces that are introduced as those needs arise. The platform enables mortgage lenders to automate title commitments and streamline communication with homebuyers and settlement teams.

It’s up to Blend’s clients to decide whether or not they want to participate in the marketplaces, which are customizable, Blend’s head of product, Erik Wrobel, told Inman.

“The information starts flowing the moment the consumer applies — we can start pre-approving title, homeowners insurance,” Wrobel said. “The lender can decide whether to enable [a marketplace], and if they have prefered title company, we can facilitate them plugging that in as well.”

To help provide homebuyers with “end-to-end journeys,” Blend operates its own title insurance agency and property and casualty insurance agency. Blend said the acquisition of Title365 expands its partner ecosystem by providing access to a network of more than 7,000 notaries. Last year, Title365 generated $212 million in revenue, and as of March 31 the company counted six of the top 12 mortgage lenders as clients.

“Our acquisition of Title365 will enable us to integrate the title, settlement, and escrow process further into our platform and develop a marketplace that provides consumers and financial services firms with the flexibility to choose title insurance partners that provide services at competitive rates,” Blend said in a July 16 investor prospectus.

Blend Realty provides broker-to-broker referrals

Blend also operates a real estate brokerage business, Blend Brokerage Inc., which does business as Blend Realty. Operating Blend Realty provides the company with a mechanism to provide broker-to-broker referrals, collecting a 20 percent referral fee when prospective homebuyers close on a home with a partner agent.

“We pre-qualify buyers, filter out the tire-kickers, and connect you with motivated buyers that have a qualification letter from our network of lenders,” Blend Realty’s website promises real estate agents.

To qualify as a Blend Realty partner agent, you need at least three years of experience, be closing at least eight transactions a year, and agree to provide Blend Realty’s 0.6 percent commission rebate to homebuyers.

Blend says the commissions or service fees it collects when consumers use its marketplaces to pick a real estate agent or title and settlement services are incremental. So far, they’ve generated “an immaterial amount of revenue.”

But according to the July investor prospectus, that revenue is expected to grow.

“Our marketplaces are intended to provide greater consumer choice and flexibility and to help financial services firms by providing them with a more complete offering in partnership with Blend,” the company said. “As we drive adoption of our software platform, we expect these commissions and service fees to comprise a larger part of our revenue.”

Since Opendoor tapped Blend in 2018 to accelerate the development of its mortgage offerings, for example, this year the iBuyer started using Blend’s integrated marketplace for property and casualty insurance as well.

“Blend helped us meet our goals of delivering a digital experience to our customers, while accelerating our time to market,” Opendoor co-founder and CEO Eric Wu said, in an endorsement of Blend’s services that’s quoted in the prospectus.

RESPA an issue when providing end-to-end services

Some mortgage lenders are looking to provide end-to-end services themselves, through sister companies offering title and settlement services, and licensed real estate brokerages that connect mortgage applicants to real estate agents.

Rocket Mortgage’s sister company, Rocket Homes, has real estate brokerage licenses in all 50 states, enabling it to operate a property search site and agent referral network. Rocket Homes recently announced it will hire on-staff real estate agents and launch an iBuyer program this year. With its ties to Rocket Mortgage and Amrock, a provider of closing and settlement services, Rocket Homes said it’s aiming to provide a “comprehensive suite of services.”

LoanDepot and its agent matching subsidiary, mellohome, plan to provide cash rebates of up to $7,000 on bundled services when clients buy and sell with a mellohome preferred real estate agent, finance with loanDepot, and choose the company’s title insurance services.

The Better family of companies includes not only Better Mortgage, but a rapidly growing real estate brokerage subsidiary, Better Real Estate LLC; a title insurer, Better Settlement Services; and Better Cover LLC, a provider of homeowners insurance policies.

Companies providing end-to-end services must be careful to comply with RESPA (the Real Estate Settlement Procedures Act) which governs compensation for business referrals made in connection with any federally-related mortgage.

Rocket Homes parent Rocket Cos. has said it’s “cooperating fully” with a civil investigative demand issued by the Consumer Financial Protection Bureau in May, 2020, to determine if Rocket Homes conducted any activities in a manner that violated RESPA, and is “confident in the compliance processes that Rocket Homes has in place.”

In its July prospectus, Blend warned investors that RESPA and other federal and state regulations are risks to its business.

“We believe that any payments we make to third parties are in compliance with applicable laws,” Blend said. “However, should any regulatory agency take a contrary position and prevail, we will be required to change the manner in which we pay fees to such employees or principals or require entities receiving such payments to become registered or licensed.”

Email Matt Carter

mortgages
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