Turmoil in the fixed-income market pushed a hot fintech lender to hit the breaks on its signature lending product

Figure, the red-hot fintech lender, has halted the origination of home equity lines of credit loans amidst a dysfunctional time for the fixed-income market, the firm's chief executive confirmed in an interview with The Block.

Led by SoFi founder Mike Cagney, Figure has been on a streak since the beginning of the year, snapping up $103 million to expand its team. In an interview with The Block earlier this month, Cagney said that the U.S. Federal Reserve's efforts to ease stress in the U.S. economy have been a boon for the firm, resulting in a surge in the number of applicants for its blockchain-powered home equity line of credit (HELOC) product. 

Still, it looks like the party is over for HELOC, at least for now. Figure decided to pull the plug on HELOC origination, at least for the time being.

In an interview with The Block on Tuesday, Cagney said that the firm had plenty of cash on its balance sheet to continue lending HELOCs, but uncertainty in certain corners of the mortgage market has made that particular business focus less appealing than other opportunities. 

"The issue is REITs are in an asset sell-off," Cagney said. "[Investors] are selling assets to meet margin calls and we don't know what the market is."

The sell-off in REITs could put a broader chill on the appetite from banks to securitize and fund new issuance in HELOCs. No one knows what the right price is for these pools of loans, Cagney said. Still, he says the loans the firm has originated to date are "holding up well" in terms of folks making their payments. 

"But if I go out and originate $100 million and put it into a warehouse, I don't know what they are going to be priced at," he said. 

The stresses across the market for bonds and asset-backed securities during this financial crisis has been well-documented. 

Rating agency Fitch revised outlooks for RMBS servicers to negative due to coronavirus stress. The concerns is that the environment will lead to a spike in delinquencies across various types of loans. 

"These stresses increase systemic risk across the mortgage servicing spectrum - both for nonbank that generally carry low non-investment grade credit profiles and banks that have relied on nonbank to handle more of their delinquent loans in the post-crisis environment," according to a March 25 news release from Fitch.

As reported by CNBC, bond pricing services haven't been working and the difference between the net asset value of bond ETFs have become dislocated with the price at which they are actually trading. As for mortgage bonds, the asset has been a "target of selling as investors look to stockpile cash in the event of market carnage," as reported by MarketWatch.

BlackRock's MBS ETF, MBB, saw its largest monthly outflows in March since the fund started trading in 2007. In one month, the fund saw more than $2 billion exit the ETF, according to data from FactSet.

Source: FactSet

Still, as one former asset-backed structured finance analyst noted in an interview, the ABS market for mortgages might not be in as precarious of a position as other sectors, such as student loans and auto loans. That's because the Federal Reserve is purchasing mortgage-backed securities. As reported by Reuters, the move has been positive for liquidity in the market and, as sources tell The Block, it has been one safe haven in debt markets amid the turmoil.

Cagney said that the relief in the ABS mortgage market only applies to GSE (Government Sponsored Enterprise) bonds rather than HELOCs and so-called prime jumbo loans. 

"We have seen some headway for GSEs," Cagney said. 

Ryan Todd contributed reporting and analysis.