Senate banking chief urges FDIC to take a closer look at Tellus, a fintech backed by Andreessen Horowitz

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Tell us, an Andreessen Horowitz-backed fintech company that claims that it can offer people higher returns on their savings balances by using that money to finance certain US single-family home loans, is under scrutiny by the US government.

On May 2, as first reported by Barron’s, US Senator Sherrod Brown, chairman of the The Senate Banking, Housing and Urban Affairs Committee wrote a letter to FDIC Chairman Martin Gruenberg expressing concern about Tellus’ allegations. In that letter, Brown pushed the FDIC to review Tellus’ business practices “to ensure that customers are protected from financial fraud and abuse.” He said an article published early last month by Barron’s raised “several red flags.”

Like the majority of fintech startups, Tellus is not actually a bank, but instead partners with banks to provide banking services to consumers. While the company was founded in 2016, it only came out of stealth last year after raising $16 million in seed funding last year led by Andreessen Horowitz. According to Barron’s (which cited records filed in Santa Clara County, California), an Andreessen Horowitz general partner, Connie Chan, was previously married to Tellus co-founder Rocky Lee. She filed for dissolution/divorce in 2021. It is not clear if the couple is still married. It is also unclear which partner from a16z led the round.

TechCrunch has reached out to Tellus and Andreessen Horowitz, neither of whom have yet to respond to requests for comment.

Tellus’ business model is unique and risky. It targets existing homeowners who want to upgrade to larger homes without selling the homes they live in, making it difficult for them to get approved for loans from traditional mortgage lenders.

Last November, Lee told TechCrunch that Tellus’ interest rates are typically 200 basis points higher than standard mortgages. For example, in today’s market, if the loan rate is 7%, Tellus will charge 9% – a premium because it claims it offers to lend money to US single-family home borrowers “in the best cities” who would otherwise not be able to get such loan. Because they use private customers’ savings deposits to finance these loans at a higher rate of return, Tellus makes money on the spread of what it pays out in interest versus what it charges borrowers.

The model is exactly what has Brown worried. If homeowners default on these loans, customers’ deposits are at risk. When TechCrunch probed Lee on that point last year, he claimed that Tellus uses “very strict underwriting criteria” and had yet to see any defaults because the majority of borrowers “go on to refinance their loans to more favorable terms shortly after.” In the earlier conversation with TechCrunch, Lee said Tellus had lent more than $80 million with an average loan size of $2 million since its inception in 2016 (Barron’s recently reported that number was now $100 million, according to industry tracker Attom). Lee also said that the company works with mortgage brokers to find borrowers, and that it finds its private customers through channels such as Instagram, TikTok and Google.

In his letter, Brown wrote: “Although Tellus claims it is not a bank, a fact its website repeatedly reminds customers, I am concerned that Tellus’ practice of marketing high-interest deposits to finance home loans may give consumers a false impression. that your money is as safe as a deposit in an FDIC-insured bank. I urge the FDIC to take a closer look at Tellus and its operations.” He also pointed out that Tellus does most of its real estate lending in the San Francisco Bay Area, a region where property values ​​have declined.

He added: “This decline could pose increased risk to Tellus depositors if Tellus borrowers default on their loans.”

Brown also pointed out that while Tellus touted partnerships with FDIC-insured banks like JPMorgan Chase and Wells Fargo, it turns out those relationships “didn’t exist.” In fact, when Barron’s spoke to both banks about the company’s claims against it, they expressed surprise, Barron’s reported.

“Wells Fargo does not have the relationship described on Tellus’ website,” the company said in a statement to Barron’s. “We are working with Tellus to update the language on their website, and remove the company’s name.” Wells Fargo said it also disagrees with the description of itself as a “banking partner.”

JPMorgan told Barron’s that it “does not have a banking or custody relationship with the company.”

And on the FAQ section of Tellus’ website, the company posted an update on April 26, saying, “Tellus is not a bank and your Tellus accounts are not FDIC insured. All of our cash is held in leading banks, each member FDIC insured. We keep this cash in different banks to ensure you always have access to your money, even if there is a problem with one of these banks. When we lend money, this cash is considered “deployed”. Deployed cash works as a loan, meaning it is a real estate loan itself and has no FDIC insurance. These loans are not mortgage-backed securities, as Tellus does not have any mortgage-backed securities.”

Brown too wrote to Tellus’ CEO and Chief Technology Officer Jeromee Johnson who outlined their concerns and requested more information about their business practices.

In general, there has been widespread panic over non-FDIC-insured accounts, leading people to withdraw billions of dollars from regional banks since mid-March to protect their assets and to the closure of Silicon Valley Bank and First Republic Bank.

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