Senate Banking chair urges FDIC to investigate Tellus, a fintech backed by Andreessen Horowitz

inform us, An Andreessen Horowitz-backed fintech firm HE It claims it might supply individuals greater returns on their financial savings balances through the use of this cash to finance sure single-home loans within the US, is beneath scrutiny by the US authorities.

On Might 2, as initially reported by Barron’sUS Senator Sherrod Brown, President Senate Banking, Housing and City Affairs Committee, wrote a letter To FDIC Chairman Martin Gruenberg, who expressed concern about Tellus’ allegations. In that letter, Brown pressured the FDIC to assessment Tellus’ enterprise practices “to make sure that prospects are shielded from monetary fraud and abuse.” mentioned an article It raised “a number of pink flags” posted by Barron’s earlier final month.

Like most fintech startups, Tellus isn’t truly a financial institution, however companions with banks to supply banking companies to shoppers. Whereas the corporate was based in 2016, it solely got here out of secrecy final yr after elevating $16 million in seed funding final yr led by Andreessen Horowitz. In keeping with Barron (quoting Registrations filed in Santa Clara County, California), Andreessen Horowitz’s basic associate Connie Chan was beforehand married to Tellus co-founder Rocky Lee. HE filed for dissolution/divorce in 2021. It’s unclear whether or not the couple remains to be married. It is also unclear which associate from A16z is main the spherical.

TechCrunch has reached out to Tellus and Andreessen Horowitz, who haven’t but responded to requests for remark.

Tellus’ enterprise mannequin is exclusive and dangerous. It targets current householders who wish to improve to bigger houses with out promoting the houses they stay in, making it tougher for them to get authorized for loans by conventional mortgage lenders.

Final November, Lee advised TechCrunch that Tellus’ rates of interest are usually 200 foundation factors greater than standard-compliant mortgage charges. For instance, if a mortgage fee is 7% in at the moment’s market, Tellus will get 9% – which is a premium as a result of it claims to supply to lend cash to American single-home debtors in “essential cities” who wouldn’t in any other case be capable of lend. take such loans. As Tellus makes use of its retail prospects’ financial savings deposits to finance these loans with the next yield, it earns on the distinction between the curiosity it pays off and the curiosity it receives from its debtors.

The mannequin is precisely what Brown is focused on. If householders default on these loans, prospects’ deposits are in danger. When TechCrunch investigated Lee at this level final yr, he claimed that Tellus makes use of “very strict underwriting standards” and has not but incurred any defaults as nearly all of debtors “proceed instantly after refinancing their loans on extra favorable phrases.” In an earlier dialog with TechCrunch, Lee mentioned that Tellus has lent greater than $80 million because the begin of 2016, with a median mortgage dimension of $2 million (Barron just lately reported the determine is now $100 million, in accordance with trade tracker Attom). Lee additionally mentioned the corporate has partnered with mortgage brokers to seek out debtors and finds particular person purchasers by means of channels akin to Instagram, TikTok and Google.

In her letter, Brown wrote: “Though Tellus claims to be not a financial institution, this web site reminds prospects repeatedly, I’m involved that Tellus’ follow of selling subprime deposits to finance actual property loans might mislead shoppers that their cash is as protected as a deposit at an FDIC-insured financial institution. I invite the FDIC to take a more in-depth take a look at Tellus and its operations.” He additionally identified that Tellus makes most of its actual property loans within the San Francisco Bay Space, an space the place actual property values ​​have plummeted.

He continued: “This decline might pose elevated dangers to Tellus depositors if Tellus debtors default on their loans.”

Brown additionally famous that though Tellus has launched partnerships with FDIC-insured banks akin to JPMorgan Chase and Wells Fargo, these relationships seem to “don’t exist.” Certainly, when Barron’s spoke to each banks concerning the firm’s claims for this goal, they expressed shock, in accordance with Barron’s.

“Wells Fargo doesn’t have the connection described on Tellus’ web site,” the corporate advised Barron’s. “We’re working with Tellus to replace the language on their web site and take away our firm’s identify.” Wells Fargo additionally mentioned it disagreed with its designation as a “banking associate”.

JPMorgan advised Barron’s it “has no banking or custody relationship with the corporate.”

And within the FAQ part of Tellus’ web site, the corporate posted an replace on April 26: “Tellus isn’t a financial institution and your Tellus accounts aren’t FDIC insured. All of our money is held at main banks and each member is FDIC insured. Even when there’s a drawback with one in all these banks, we preserve your cash in several banks so to all the time entry it. After we lend, this money is taken into account ‘deployed’. The money distributed acts as a mortgage, which means it’s a actual property mortgage and has no FDIC insurance coverage. As a result of Tellus doesn’t maintain mortgage-backed securities, these loans aren’t mortgage-backed securities.”

brown too Wrote He expressed his issues to Tellus’ CEO and Chief Expertise Officer, Jeromee Johnson, and requested for extra info on their enterprise practices.

Total, there’s widespread panic about accounts with out FDIC insurance coverage, which has led individuals to withdraw billions of {dollars} from regional banks and shut down Silicon Valley Financial institution and First Republic Financial institution since mid-March to guard their property.

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