Purchasing Homes with Crypto with Bill Erbey of ForumPay
[David] Listeners, We're in for a real treat today. We've got one of the legends of our industry joining us on the podcast. He's got a new Crypto concept of what he's working on. I first met him many decades ago when he launched a company called Ocwen Financial and then he also then moved on Altisource Portfolio Solutions. This is another NASDAQ, ASPS that you could talk to or look at and it's a real honor, especially when you see what he's doing today. Bill Erbey, welcome to the podcast. Thank you so much for joining us.
[Bill] David, thank you so much for having me. It's a pleasure.
[David] It's a real honor when you look at your track record and that's really what I want to cover. We have a lot of new people to the industry that listen to our podcast. We've got a lot of old veterans on there. Some of the old veterans will love to hear the story, but for the newer ones will soon to be veterans or they're coming on into the industry. I'd like to have you share a little bit of your story, your journey into the mortgage space to inspire the next generation.
[Bill] I got thrown in feet first back in 1982. I was working for G- Capital and they decided they wanted to buy a mortgage insurance company, which was called Jemica and many of you probably won't remember back in 1982-83. it was a financial crisis much like you had back in 08 and people were worried about Fannie, Freddie actually failing, they thought they could go bankrupt in those days, which when they didn't, they thought, oh, that was silly that people thought that. It was a real eye opener to me because my background at GE Capital has all been commercial lending. And I'd never really been in the mortgage space, and we saw a real crisis going on and, the foreclosure rates were through the roof and what was really shocking to me was that there was no technology as to how to resolve those issues. The only tool they had was basically to foreclose and that was even supported by the agencies, et cetera, because they thought that would be moral hazard if you actually, would come up with some sort of reverence plan that everybody in fact, would start defaulting on their mortgages as a result of that. So, I started thinking back in those days, I was only a chemical for about a little over a year before I left to join the predecessor of which was a merchant banking company. But it was an interesting time in addition to foreclosures, GE Capital at that time does AAA credit rating. So, I thought what we should do is really go into mortgage-backed securities. Because we had a tremendous advantage in terms of, we are the only mortgage insurance company with a triple A rating, and we started in housing revenue bonds at that time. Actually, went to Lou Raniere and proposed the idea that you should start tranching mortgage-backed securities based on time. Short term, intermediate, long term at that particular time. So that was a good time for GE Mortgage. When I got there, we were number 12 in the industry, which was an advantage because we didn't have all the baggage that all the other 11 bigger guys had. And it will stay so that 12 months become the largest mortgage insurer in the United States at that period of time. I left, as I said, to go to Ocwen financial, which was the predecessor of Ocwen. And at that time, we actually bought a mortgage insurance company. So, we bought investors mortgage insurance out of Boston.
[David] Okay. Remember that? Remember that? Yes, I sure do.
[Bill] Yeah. And that again, losses were still rising. This was 1985, 86. I think magic went bankrupt in 85, 86, or something like that. And we sat down, my wife and I, we actually developed the first loss curves because when you looked at IMI they thought that losses were going to continue to rise. We made the bet that the loss curve looks like a parabola, a parabola. Distributed lag didn't start coming down, so they had about $200,000000 of equity and it was all liquid assets on the left-hand side of the balance sheet. We bought that for $100,000,000. I borrowed $99,000,000 of it from Drexel Burnham. And so, we turned around and made $100,000,000 on that transaction.
[David] I love that story. I love the fact that your wife and you were sitting around the dinner table playing with it as a concept. I would have sat at that dinner table and listened to those conversations. Amazing.
[Bill] So, it was an interesting time. And I started at that time, started to develop the tech, to how to resolve loans in terms of basically there had to be a way that foreclosing on every property with regard to that. We then rolled off half of Oxford into what was Ocwen. And basically, during the, you had the crisis then, right? So we started buying basically bankrupt thrifts from the RTC, which you ended up with a lot of bad mortgage loans when you when you did that. So, we had two primary businesses there. One primary business was mortgage-backed securities, and the other was basically non-performing loans. And then the mortgage-backed securities when you, once you started tranching mortgage-backed securities, you essentially created phantom income in the early part of the transaction, because if the average coupon were on the mortgages were 8%, and the early ones were 2%, you actually had 6% of phantom income. And so, we developed was something called a nerd, it's actually the pure equity piece at the bottom of the stack. And what it is that you basically absorb all of the phantom income, all the tax liability on the front end, and it turns around to be a tax, a negative tax on the back end of the security time value of money. So people were writing us major checks to absorb those taxes on the front end. Basically, we became one of the largest players in low-income housing tax credits to absorb those upfront tax payments with regard to that.
[David] That was brilliant. Brilliant.
[Bill] When you looked during that period ourselves and one other company, each had about a 50% market share. So, we looked like we owned half of the Fannie Freddie's Securities in America, even though it was a small tax sliver at the point of each transaction. And the other half of the business was really essentially going into non-performing loan business.
[David] Which we were so prevalent at the time.
[Bill] Right, now we were we did single family, multifamily, small commercial, large commercial. We service loans for Goldman Sachs, Merrill Lynch around the world. We work for the government, Jamaica, the government of Mexico, really resolving non-performing loans. And what we did was basically look at it as a psychological problem and a mathematical problem. We developed the first modifications, and we did the first regular modification of the principle as well. But the problem we always had was you had to get the person on the phone. So, we actually have one of the largest psychology departments in America to try to figure out how you would basically interact with a borrower, the borrowers were afraid, they thought, in fact, the financial institution wanted to take their home and they tried to duck you, they didn't think you wanted to work with them to try to resolve that loan. And you couldn't modify a loan unless you can talk to them. You have to work with them to be able to do it. So, challenge was, how do you in fact, create that trust that you actually want to help them not take their home from that. And so, we also then did a lot of mathematics as to how you got the optimal resolution strategy, because you wanted to keep the person in the home definitely. But you also had an obligation to the investor, the full stack. You have a positive net present value resolution. We used a lot of optimization technology to figure out how that would work. But, during the financial crisis, 40% of all hand mods.
[David] I didn't realize you had was that much 40%.
[Bill] Of all he had mods. That was bigger than any of the major banks. We saved over the whole crisis. We saved close to a million homes. That was a long-winded story, but that was 40 some years.
[David] It's a great story because what it showcases, Bill, is that you're so innovative in opportunities and you find a way to get in the way of those opportunities and capitalize on them. And that's the beautiful thing about capitalism. I just recognizing those. And I love that. And I love someone who's done that successfully. So, listeners knowing that he's had as much success in what he has done, let's pay attention to what he's doing now. Bill, tell us about your new venture into crypto. Not surprising. Crypto is the new thing.
[Bill] I've actually in five different tech area spaces right now, crypto is one of them. I was always a crypto skeptic when initially, you really couldn't buy anything with it. I always said it was like tool bulbs and the industry was really like the wild west, which is true of most embryonic industries. You look back at the railroads. In the 1800s, there were hundreds of railroads, So, that's true of most that there becomes a real consolidation with regard to that. I saw an article about the six characteristics of money, limited supply, durability, portability, divisibility, uniformity, and most importantly fungibility. Crypto is better on five of those than any other fiat currency. but it was horrible on fungibility. So, what we developed with ForumPay, our mission is to basically make crypto fungible. So, you can use it, you can spend it. It has real economic value to it, not just buy and It'll go up for whatever reason,
[David] the Bitcoin story. Yeah. So, this actually has practical value to what you're doing. So, explain that. What is the practical side of this and how do people actually buy homes with crypto using ForumPay.
[Bill] We look at ourselves as being the Mastercard and Visa of crypto. In other words, people have asset value, and they can go out and buy things with it. You look and we have on our website about how they interviewed people at Burger King, right? And basically, people say no one will ever buy a hamburger with a credit card. It is amazing. I think the digitization, if you will, of currencies is going to have a far-reaching effect in the world. For example, international trade. If you move money from one currency zone to another, it’s very time consuming, very expensive to move money around the globe. So, if you have bananas on the dock and it takes you 7 days to basically get a wire to pay for them so you could distribute them, that's a serious problem. You have major portions of the world and also major portions of the United States where they're simply unbanked and the opportunity to use digitization, if you will, everybody in Africa has a cell phone. There are more cell phones in Africa than there are people. You can go to the inner cities in America, seriously under banked. It's just a lot more efficient way of transacting.
[David] Explain a little more of that, for those listeners ignorant of what you're meaning about it's more efficient and how this works because this is really important part of what is in your business model, especially when you're looking at different countries, you can get a transaction done in a matter of minutes now versus seven days.
[Bill] Or seconds, we solved a very important problem, though. I should make point out that when we went into crypto, the biggest problem was a lack of instantaneous price determination.
[David] That's exactly right. Yes.
[Bill] Because of the time it takes to clear the blockchain. That's a problem If you're going to go to a store and buy something and you either don't know what you pay, right? or you have to wait there for the blockchain to clear, which is completely impractical. We provide instantaneous price determination, and the other thing we do that is unique is we're integrated with all 575 million wallets in the world. there's no walled garden. In other words, you don't have like a Coinbase, you'd have to have a Coinbase wallet, and you deal with that. We're ubiquitous across the entire.
[David] So is that really your secret sauce? Is that right there? The secret sauce of what you're doing.
[Bill] Instantaneous price determination being integrated with every single wallet in the world. We also have lots of technology. We're the only firm that's actually been integrated by major credit card processors. So, we've passed that hurdle. We have a lot of technology that enables you to, for example, if you want to pay people around the globe, we handle all of that technology. So, it's trying to have all the different payment options available within the tech stack. We're basically a tech company. We're not investing in crypto. We're not an exchange where people trade. We basically process transactions.
[David] Such a fascinating thing. So, let's get back at how this relates to how people actually can buy a home, let's get to the real estate markets as we have so many loan originators and so many mortgage bankers, mortgage lenders on this podcast, listening to this. Explain how this works.
[Bill] Sure. It's really interesting. Most people, when you talk to them about buying a home, somebody bought a home with crypto, they're like surprised, right? And if you look at the Redfin numbers, Redfin in the third quarter of 2019 said 4.6% of first-time homebuyers brought a home with crypto.
[David] What year was that? What year?
[Bill] 2019.
[David] 2019, okay.
[Bill] In 2020 it doubled to 8.8%. 2021, it went up to 11.6% and I don't have any numbers since that Redfin with regard to.
[David] It's got to be starting to get exponential on the curb with a hockey stick up on this because of the whole amount. When I was out in last week out, we're recording this on the 14th of June. Last week I was at the blockchain conference in Santa Ana working with RealCoin, it is one of the new cryptos that are coming into the space. And I was amazed, Bill, at the size of the exhibit hall. Everybody is getting into this thing. So, I'm anticipating a rapid adoption of this and we're seeing it. I saw it firsthand rapid adoption of this and it's not like Fannie and Freddie have said they can do this, but there was a waiting period is part of the thing. And if I understand correctly, you're taking out that waiting period. Am I correct?
[Bill] That's right. If you transact with ForumPay historically, those numbers were when you had to basically sell the crypto. 60 days and then go buy the house. I'm shocked that someone was able to do that, in terms of waiting two months to be able to close the home. With ForumPay, we certify that it's clean money and the fact that it's been in their wallet.
[David] That’s an important point, the clean money
[Bill] And in 60 days, they can immediately basically buy the home with crypto in their wallet. And so, all we do is we interface with whoever the escrow agent is. And the buyer sends us the crypto and we convert it into fiat U.S dollars and the transaction closes. So, there's no delay in that when you go through ForumPay with regard to that.
[David] You just described that process. Is there anything unique about that? that's there. How do you open up an account with ForumPay? Let's start there. So if someone has to have an account open, that starts how does someone go about doing that?
[Bill] The buyer doesn't actually, all it has to be the escrow agent. And we have title companies in all 50 States. So, all you have to do basically is say you want to close with crypto and make sure you're with a title company that in fact.
[David] So, it's not that the consumer has to have a ForumPay account. You need to work with a title insurance agency that does.
[Bill] Yeah, and there's really no integration involved. We just have to do KYC in the title company, which is very simple because they're all regulated. So essentially, we just wire the money to the title company.
[David] Yeah this really opens up other opportunities that you're beginning to open up. You have a token, I believe it's called property awards token, am I getting that right? Explain that.
[Bill] It's property rewards. If you look at that.
[David] by the way, it's a good play in words. Like Ocwen is Newco spelled backwards, which I guess was your wife's idea. I love that.
[Bill] Yeah, absolutely. If it’s the name of the company. I go to her, if you look at credit and debit cards, 80% of all card transactions in the world are rewards card transactions.
[David] That's true. Yes.
[Bill] Okay. So, what we did is patented the concept of having a rewards token. So, if you buy something with the property token like a house, 5%, if it's saying, if you spend a hundred tokens, we'll give you five tokens immediately into your wallet that you can spend elsewhere. Now, what we're doing regarding that, because buying a home is episodic. You don't buy one every day. So, what do you do with the 5%? We've signed an agreement with Incom, which is, was the actual inventor of the rewards card and was getting 600 different rewards prepaid cards on our site, which is cryptorewards.com. So, with that 5%, you can buy things from Amazon, Apple, Home Depot, Lowe's, Ikea, et cetera. So, if you buy the home, then you go buy all the furniture and all the tools that you need with regard with those rewards tokens. You can even buy gasoline stations to get 5% off. And when you buy that card, you get another 5% reward back again. And the reason we're able to do that is just simply the tokenomics are far different. We're essentially the exchequer. So, we have those. Those tokens are available to work with.
[David] That doesn't trip across any compliance issues. Does that? I'm sure you've thought about this, but I'm starting to think for some reason, there's some compliance implications that might come with that with those five tokens.
[Bill] Yeah, we have basically we've got an opinion from a well-known Wall Street Law Firm and 2 things we wanted to check on. One is that we got an opinion. It's not security. We're trying to create something that's fungible. It's a currency. We're not touting it as an investment. It lo oks like structured. It looks like a reward card. It looks exactly like it's just digitized prepaid reward card with regard to that and then we also basically have an opinion on money transmitter license with regard to that technology.
[David] This just opens up some new opportunities. We're all looking out how to differentiate ourselves in this highly competitive market whether six loan officers for every one transaction out there. It's so important that our listeners plug into this. How can they learn more? Who should they be taking this to?
[Bill] It's an interesting demographic. Last year, 25% of all Americans who've had an internet access and they're mostly under 40. If they're going after a demographic of first-time home buyers.
[David] Yeah, biggest part of the market that's the biggest opportunity in the market right now is that group, especially Gen Z or is less than 38 years old or younger.
[Bill] And they're actually mortgages underserved in that market because of 25% of all Americans own crypto, it must be like 50% of them have to be under the age of 40 or more.
[David] Yeah, that's what I'm thinking. There's just a huge opportunity with that first time home buyer and their knowledge of embracing of crypto already.
[Bill] With the ability to seamlessly close a transaction, it should be able to get a lot greater market penetration. So, there are certain firms out there that we deal with that actually focus on that demographic they want to go after the first-time home buyer, et cetera. That's not to say though, that the largest dollar amount that we do is not on first time home buyers. It's actually on very high-end homes, we've done homes, $20 million, $15 million homes. So, the dollar value, a $20 million home, except for a lot of first-time homebuyers. There are some firms out there that do extraordinarily well by really focusing on the crypto community. If you're not focused on them, you're basically losing a very rapid demographic or very rapid growth in market share.
[David] That's a great point. It's really a great point. Listeners. Did you hear that? You've got to focus in on crypto because that's being adopted by that under 40 group, it's the lowest number of first-time home buyers in that age group that's ever existed because they've put off buying a home and now especially as we're watching the real estate market slow down a little bit, ease off. And so, we're going to start seeing more buyers. It's important. How can people learn more? Do they need to get ahold of you? Go to a website? What should they do, Bill?
[Bill] They can get ahold of me. I can get you in touch with our team in ForumPay. You can go to the website for ForumPay and learn a little bit about what's going on there. It's really growing rapidly. What's interesting, what's holding crypto back as much as anything are the merchants lagging behind because most of them are our age, David, or actually, they're probably 2 decades younger than we are. They're not in that under 40 group and that's what's holding back as much transactions as you would think that would otherwise be, but, look at Circle and Ether. Those 2 tokens are basically for transactions, there are USD denominated, right? So, they're not going up in value compared to the dollar. They don't pay interest directly with regard to it. So, the only reason you would necessarily hold those is because basically you want to transact with them. And so you have a couple hundred billion dollars’ worth of tokens with a degree of velocity that would indicate the tremendous number of transactions that are going in being undertaken within crypto.
[David] Fascinating topic, Bill. It's just so interesting. Again, what's so fun about you. You've enjoyed such great success. You've done very well financially, and you're still out there innovating. I just applaud you for what you're doing. And we connected again. We got to give AltiSource and LendersOne a big shout out. You guys had the foresight, AltiSource did acquiring LendersOne. And so that's where you and I met, we were in LA together here earlier this year, and it was a great meeting you there. And I could see the excitement when we were introduced, and you started talking about this. Is this one of the most exciting things you think you have been working on?
[Bill] It's exciting. I got a couple other ventures that are very exciting. One is the first known therapy to cure kidney disease and kidney disease is the largest signal of medical spend in the United States. It's about $850 billion a year.
[David] Wow. I had no idea.
[Bill] It's 1.5 times the federal defense budget. So, it's a huge opportunity with regard to that. I have another business where we're developing new managed routing protocol for the internet. The Internet's congested because of its the routing protocol for the internet today, as it was. And then the last one is I had a technology that will reduce energy loss in EVs by about 12%. So, they all use pretty much use mathematics to solve what people thought were physical problems. So that some of the same math we use back at Ocwen to optimize loan modifications, et cetera.
[David] the next question would be, do you know Elon? Because you seem to have that kind of mind that's working as fast as Elon's. It's just been a delight to have you on the microphone and join the podcast, Bill. Again, encouraged our listeners to go to the website forum FORUMPAY. Is it a.com at that point?
[Bill] Yep. forumpay.com
[David] or property. P-R-O-P-E-R-T. Rewards.
[Bill] Yeah, the website there is G-T-P-R-O-P-E-R-T.com.
[David] Okay, good. Very good. We'll put the links in our show notes, folks. So go over to our show notes and we'll have that as well as Bill's full bio. It's just one of these stories. I'm going to be featuring him also on the Lykken on Leadership podcast. We're going to be doing that one recording. So, we'll have him featured over there. You can hear more of his story. It'd be fun to hear more about what he's doing now, but really, that's to really understand and get in the mind of leaders like Bill, who's done such a phenomenal success. We need to get this recorded and passed on. We're not getting any younger Bill. So, it's important that we get these recorded so we can keep these for the next generation. Thanks so much for being here. I really appreciate it.
[Bill] David, thank you for having me. You're really amazing. Your podcast is a success you've had there. Thank you so much.
[David] That's a real joy. It's a work and all of a passion and it's helping, educating, equipping the next generation for success. Thank you so much for being here.
[Bill] David. Thank you. Have a good evening. Thanks.
[David] You bet.
[Bill] Good night.
Important Links
Bill Erbey is a successful serial entrepreneur, investor and a retired public company Chairman/CEO. He is passionate about solving big problems and finding better ways of doing things. Over a period of four decades, Bill founded and scaled up companies in diverse industries, ranging from loan servicing, real estate services, mortgage services to online real estate sales and video broadcasting technology.
While the industries Bill has operated in are diverse, the common theme is always about use of innovative technology to serve a large and inefficient market. Bill holds a Bachelor of Arts in Economics from Allegheny College and a Master of Business Administration from Harvard University.
Bill started his career with General Electric in 1975, continuing to serve there in various capacities till 1983. In his last role he was the President and Chief Operating Officer of General Electric Mortgage Insurance Corporation. Bill also served as the Program General Manager of GECC’s Commercial Financial Services Department and as the President of Acquisition Funding Corporation.
Bill served as a Managing General Partner of The Oxford Financial Group, a private investment partnership from 1983 to 1995. He was the Chief Executive Officer of Ocwen Financial Corporation (NYSE : OCN) a leading sub-prime servicer from 1988 to 2010 and served as the Executive Chairman of its Board of Directors, from 1996 to 2015. Bill has also served as Chairman of the Board of Directors for several other public companies which he founded: Altisource Portfolio Solutions S.A. (NASDAQ : ASPS), Home Loan Servicing Solutions, Ltd., Front Yard Residential Corporation (NYSE : RESI) and Altisource Asset Management Corporation (NYSE : AAMC).