If you’ve ever applied for a mortgage, you know it’s one of the most painful processes out there. Keeping up with payments and dealing with customer service over the course of the loan is no picnic either.
So it’s no surprise that big bucks are being poured into the space with the goal of making the process easier, more digital and more transparent.
To that end, Valon Mortgage, a tech-enabled mortgage servicer, announced this morning it has raised $50 million in a Series A round of funding -- which is large for its stage even by today’s standards.
Andreessen Horowitz (a16z) led the round for the New York-based company formerly known as Peach Street. Returning backers Jefferies Financial Group, New Residential Investment Corporation -- an affiliate of Fortress Investment Group LLC -- and 166 2nd LLC (the family office of WeWork co-founder Adam Neumann) also participated in the financing.
Valon previously raised $3.2 million from seed investors such as serial entrepreneur Kevin Ryan’s Alley Corp., Soros, Kairos and Zigg Capital.
Andrew Wang, Eric Chiang and Jon Hsu founded Valon in June 2019 with the mission of breaking up what it sees as “a monopoly in the market,” with “the largest mortgage servicing software company” (software giant Black Knight) controlling more than half of all U.S. residential loans.
“We’re on the cusp of a mortgage foreclosure crisis comparable to 2008, and the majority of homeowners struggling to make their loan payments are unaware of their options,” Valon CEO Wang said. “This stranglehold has driven servicing costs up nearly 250% in the past decade, and the fees are passed on directly to the borrower.”
Concurrent with the raise, Valon recently got the green light from Fannie Mae to service its government-sponsored home loans. (For the unacquainted, servicing loans means doing things like collecting payments on behalf of a lender). The approval will only continue to fuel Valon's rapid growth, according to Wang.
“We went from no contracts committed to $10 billion in mortgages committed to be serviced in one year,” he told TechCrunch.
Valon operates in 49 states, and expects to add New York this year.
As a former investor in mortgage servicing space, Wang was frustrated by “the lack of service” provided by other servicers. So he teamed up with Chiang and Hsu, who had prior product and engineering experience at Google and Twilio, to launch Valon.
The company’s cloud-native platform aims to deliver what it describes as a borrower-oriented experience. Lenders also can request access to real-time API data feeds to view performance of their borrowers and reconcile transaction data.
Unlike mortgage originators, which lend money to the borrower, a mortgage servicer interfaces with the borrower for the duration of their loan -- and that can be anywhere from 15 to 30 years.
“This includes things like collecting payments on behalf of the lender and providing assistance and guidance to the borrower in moments of stress,” Wang said. “Traditional mortgage servicers use antiquated technology and provide poor service to borrowers. Valon looks to change that dynamic by providing transparency and full self-service capabilities to homeowners.”
The company also claims that its technology has the potential to reduce mortgage servicing costs by up to 50% by vertically integrating the entire process. Its platform is built on Google Cloud with security as a “first-principle” with features such as default encryption and intrusion detection, the company said.
Millions of Americans stopped paying their mortgages in 2020 due to the economic strain of the coronavirus pandemic. This led to requests for forbearance (postponement of payments) and foreclosure moratoriums.
“The pandemic highlighted the stress in the market and greatly accelerated the need for a new-age mortgage servicer,” Wang said. “Homeowners faced a great deal of financial stress and had difficulty getting the right option and assistance from existing servicers due to their antiquated technology and inability to process requests... In 2021 we will see forbearance and foreclosure leniency come to an end and this need will be even more acute.”
Angela Strange, a general partner at Andreessen Horowitz who joined Valon’s board in mid-2020, says Valon has built a mobile-first mortgage servicer from the ground up.
“Homeowners are faced with clumsy websites, call centers, and often misinformation,” she said in a written statement. “In Valon, they have a trusted software driven advisor who can provide clear, transparent, regulatory compliant information in good times and bad -- without needing to pick up the phone.”
The Fannie Mae approval only serves as further validation of the platform the team has created, she added.
Valon plans to use its new capital to triple headcount to about 100 by year’s end, as well as to acquire more mortgage servicing rights (MSR) contracts to service.