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 space with the goal of making the process easier, more digital, and more transparent.
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 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.
Valon operates in 49 states and expects to add New York this year.
As a former investor in the mortgage servicing space, Wang was frustrated by “the lack of service” provided by other services. So he teamed up with Chiang and Hsu, who had a 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 the performance of their borrowers and reconcile transaction data.
“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.”
“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.
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