Tell us, a fintech company backed by Andreessen Horowitz That claims that it can offer people higher returns on their savings by using that money to fund certain US single-family home loans are under investigation by the US government.
On May 2, as first 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 expressing concern over Tellus’ claims. In that letter, Brown urged the FDIC to review Tellus’ business practices “to ensure customers are protected from financial fraud and abuse.” He said an article published early last month by Barron’s raised “several red flags”.
Like most fintech startups, Tellus is not actually a bank, but partners with banks to provide banking services to consumers. Although the company was founded in 2016, it only emerged from stealth last year after raising $16 million in seed funding last year led by Andreessen Horowitz. According to Barron’s (who quoted records filed in Santa Clara County, California), a general partner of Andreessen Horowitz, Connie Chan, previously married Tellus co-founder Rocky Lee. She filed a marriage dissolution/divorce lawsuit in 2021. It is not clear if the couple is still married. It is also unclear which partner of a16z led the round.
TechCrunch has reached out to Tellus and Andreessen Horowitz, neither of whom has 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 loan approval from traditional mortgage lenders.
Last November, Lee told TechCrunch that Tellus interest rates are typically 200 basis points higher than standard conforming mortgages. For example, if a loan’s interest rate is 7%, Tellus will charge 9% in today’s market — a premium because it claims to be lending money to US single-family home borrowers “in top cities” who would otherwise be unable to borrow money. get such loans. Because it uses its retail customers’ savings to fund these loans at a higher rate of return, Tellus makes its money on the spread of what it pays in interest versus what it charges its borrowers.
The model is exactly as far as Brown is concerned. If homeowners fail to pay off those loans, customers’ deposits are at risk. When TechCrunch questioned Lee on that point last year, he claimed that Tellus has “very strict underwriting criteria” and has yet to see any defaults because the majority of its borrowers “refinance their loans on more favorable terms soon after.” In that earlier conversation with TechCrunch, Lee said Tellus had loaned more than $80 million with an average loan of $2 million since its inception in 2016 (Barron’s recently reported that the figure was now $100 million, according to industry tracker Attom). Lee also said the company works with mortgage brokers to find borrowers, and finds its retail customers through channels like Instagram, TikTok and Google.
In his letter, Brown wrote: “While Tellus maintains that it is not a bank, a fact the website repeatedly reminds customers of, I am concerned that Tellus’ practice of marketing high-yield deposits to fund real estate loans will deprive consumers of the could give the wrong impression that their money is as safe as a deposit with an FDIC-insured bank. I urge the FDIC to take a closer look at Tellus and its operations. He also pointed out that Tellus makes most of its real estate lending in the San Francisco Bay Area, a region where property values have fallen.
He added, “This downturn may pose greater risks 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.” When Barron’s spoke to both banks about the company’s claims related to that target, 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 our company name.” Wells Fargo said it also disagrees with the description of itself as a “bank partner.”
JPMorgan told Barron’s it “has no banking or custodial relationship with the company.”
And on the FAQ section of the Tellus website, the company posted an update on April 26 stating, “Tellus is not a bank and your Tellus accounts are not FDIC insured. All our money is held with leading banks, each member FDIC insured. We keep this money with different banks, so that you can always access your money, even if there is a problem with one of these banks. Once we borrow money, that money is considered “staked.” Wagered cash acts as a loan, meaning it is itself a real estate loan and does not have FDIC insurance. These loans are not mortgage-backed securities as Tellus does not hold any mortgage-backed securities.”
Brown too wrote to Tellus CEO and Chief Technology Officer, Jeromee Johnson, outlining his concerns and asking for more information about their business practices.
In general, there is widespread panic about accounts not being FDIC-insured, people withdrawing billions of dollars from regional banks to protect their assets since mid-March and the closures of Silicon Valley Bank and First Republic Bank.
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