To respond to your confusion around the analyst’s mortgage question:
Mortgages are tough because most of them are sold to Fannie and Freddie. Fannie and Freddie have very tight rules and that’s why mortgage lenders/brokers make you jump through hoops - because if they don’t get things exactly right, Fannie / Freddie won’t buy them, and the goal is to get them off the books.
Convincing Fannie and Freddie to take loans that don’t meet their criteria is a very tough sell. It’s a HUGE HURDLE for Upstart.
So, what the CEO is saying is that there are three options. The LEAST likely IMO in the beginning is that the GSE rules will change and restrictions will be loosened in response to Upstart’s superior risk analysis. I mean we are talking about the government here. But I’m sure they will be working on this.
So the other options are that the banks will keep the loans (some banks already choose to do this, but most of them are offering shorter loans or adjustable rates, not 30 year fixed rates) and also the loans can be securitized and sold (big Short, anyone? Just kidding, this is exactly the opposite.)
My take is that this is why mortgage will be tackled later, and when it is tackled, they will start very small and securitize. Once they prove the default rate is as superior as with personal loans, and as good or better than Fannie / Freddie criteria (preferably better), then dominos will start to fall. Recognize; however, that mortgages take a lot longer to default than personal loans so this is a very long game. And while the AI/ML from personal loans can be used to start the process, I imagine in the end it will have to be retrained because there will be differences between personal loans and mortgages.
Keep your expectations in line with reality. I think going after SMBs and also auto and micro loans is a smart move as these spaces are natural first adjacencies.