Senate Banking chair prompts FDIC to check out Tellus, a fintech backed by Andreessen Horowitz

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Tellus, an Andreessen Horowitz-backed fintech business that declares it can provide individuals greater yields on their cost savings balances by utilizing that money to money particular U.S. single-family-home loans, is under examination by the U.S. federal government.

On May 2, as initially reported by Barron’s, U.S. Senator Sherrod Brown, chairman of the Senate Banking, Housing, and Urban Affairs Committee, wrote a letter to FDIC Chairman Martin Gruenberg revealing issues about Tellus’s claims. In that letter, Brown pushed the FDIC to evaluate Tellus’s business practices “to ensure that customers are protected from financial fraud and abuse.” He said an article released early last month by Barron’s raised “several red flags.”

Like most of fintech start-ups, Tellus is not really a bank however rather partners with banks to provide banking services to customers. While the business was established in 2016, it just emerged from stealth in 2015 after raising $16 million in seed financing in 2015 led by Andreessen Horowitz. According to Barron’s (which mentioned records submitted in Santa Clara County, California), an Andreessen Horowitz basic partner, Connie Chan, earlier wed Tellus co-founder Rocky Lee. She filed a marriage dissolution/divorce lawsuit in 2021. It is unclear if the set is still wed. It is likewise uncertain which partner from a16z led the round.

TechCrunch has actually connected to Tellus and Andreessen Horowitz, neither of which have yet to react to ask for remark.

Tellus’s business design is special, and dangerous. It targets existing home owners who want to upgrade to bigger houses without offering the houses they reside in, that makes it hard for them to receive approval for loans by standard home loan loan providers.

Last November, Lee informed TechCrunch that Tellus’s rates of interest are generally 200 basis points greater than the basic adhering home loan. For example, in today’s market if a loan’s rate is 7%, Tellus will charge 9% — a premium since it declares it’s providing to provide money to American single-family-home customers “in prime cities” who would otherwise not have the ability to get such loans. Because it is utilizing its retail consumers’ cost savings deposits to money these loans at a greater yield, Tellus makes its money on the spread of what it’s paying in interest versus what it’s charging its customers.

The design is precisely what has Brown worried. If home owners default on those loans, then consumers’ deposits are at danger. When TechCrunch penetrated Lee on that point in 2015, he declared that Tellus makes use of “very strict underwriting criteria” and had actually not yet seen any defaults since most of its customers “go on to soon after refinance their loans at more favorable terms.” In that earlier discussion with TechCrunch, Lee said Tellus had actually provided out more than $80 million with a typical loan size of $2 million because its 2016 beginning (Barron’s just recently reported that the figure was now $100 million, according to market tracker Attom). Lee likewise said the business partners with home loan brokers to discover customers, which it discovers its retail customers through channels such as Instagram, TikTok and Google.

In his letter, Brown composed: “Although Tellus claims that it is not a bank, a fact its website repeatedly reminds customers of, I am concerned that Tellus’s practice of marketing high-interest deposits to fund real estate loans may give consumers the false impression that their money is as safe as a deposit at an FDIC-insured bank. I urge the FDIC to take a closer look at Tellus and its operations.” He likewise explained that Tellus does the majority of its property financing in the San Francisco Bay Area, an area where property worths have actually been decreasing.

He included: “This downswing may pose increased risks to Tellus depositors if Tellus borrowers default on their loans.”

Brown likewise explained that while Tellus promoted collaborations with FDIC-insured banks such as JPMorgan Chase and Wells Fargo, it ends up those relationships “did not exist.” Indeed, when Barron’s talked with both banks about the business’s claims towards that end, they revealed surprise, reported Barron’s. 

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

JPMorgan informed Barron’s it does “not have a banking or custodial relationship with the company.”

And on the frequently asked question area of Tellus’ website, the business published an update on April 26, stating: “Tellus is not a bank, and your Tellus accounts are not FDIC insured. All of our cash is held at leading banks, each member FDIC insured. We keep this cash at different banks to ensure you always have access to your money, even if there’s a problem with one of these banks. Once we lend money, that cash is considered ‘deployed.’ Deployed cash acts as a loan, meaning it’s a real estate loan itself and has no FDIC insurance. These loans are not mortgage-backed securities, as Tellus holds no mortgage-backed securities.”

Brown likewise wrote to Tellus’s CEO and Chief Technology Officer Jeromee Johnson describing his issues and asked for more details on their business practices.

In basic, there has actually been extensive panic about accounts that are not FDIC-insured, leading individuals to withdraw billions of dollars from local banks because mid-March to safeguard their properties and to the shutdowns of Silicon Valley Bank and First Republic Bank.

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