CEO wants to shake up the mortgage industry

Firm has just secured another major coup

CEO wants to shake up the mortgage industry

Valon’s co-founder and CEO, Andrew Wang (pictured), is in a good place at the moment.

The fintech start-up he leads last week raised $43.9 million in equity from investors in what was another major coup for the firm following February’s announcement that it had closed $50 million in series A funding.

The Fannie Mae and Freddie Mac approved company that operates a digital mortgage-servicing platform appears ready to begin the next phase, making strategic acquisitions and hiring key staff, as well as branching out into the origination side of the business.

“Before we were mostly focused on the servicing side, but now (with the new capital) we are both focused on servicing and origination. It also gives us capital to potentially look for acquisitions, and we’re looking predominantly at tech companies,” Wang told MPA last week.

Read more: Tech trends shaping the mortgage industry in 2021

The latest round of funding is also a timely fillip for the firm as the federal moratorium on foreclosures expired last month, with more than 1.2 million US homeowners reaching the end of their forbearance assistance plan, according to CoreLogic.

Wang has made it clear that the firm’s proprietary in-house technology is not only ideally suited to deal with this specific problem but that it can do it far better than the competition.

Earlier, he had described the mortgage sector’s efforts at dealing with foreclosures as “frustrating” and lacking “clear guidance” for homeowners on how they could access plans for a variety of (expected) outcomes, including repayment, reinstatement, deferral, or loan modification.

Valon’s CEO pulled no punches, saying many homeowners were at risk of losing their homes as a result.

His assessment of the mortgage industry’s efforts is quite revealing.

“The business is pretty commoditized, it’s what ends up happening when you have a very old school faced with little innovation,” he said.

“What needs to happen is actually a large leap in technology. But it’s also such a large leap that people don’t want to make that jump until they’ve seen proof from other people that it works perfectly. But if everybody’s thinking that way, you basically have a herd mentality, and then nobody ends up actually changing.”

In his view, the problem often boils down to having only one large provider – and the culprit is over-regulation.

“If they (servicers) make a mistake, it could have long term impact to their entire business. Changing the software that you’re using or adopting new software that hasn’t been given that stamp of approval with every single possible regulator out there can cause you a lot of problems.”

From the viewpoint of a start-up, regulation can often appear to be little more than ballast, and for Wang, dyed-in-the-wool traditionalists who find it hard to accept “unusual” start-ups like Valon are a huge stumbling block.

“(Start-ups) are unusual to begin with for regulatory reasons. In addition, existing investors of both loans and servicing are also generally looking for a stable business and not really a start-up. So, getting into this space from the very beginning is a very difficult task,” he revealed.

That hasn’t stopped Valon’s upward trajectory since it was founded two years ago, in 2019. Licensed across 49 states (New York is expected to join the portfolio by the end of the year), the company has some big guns behind it, including Starwood Capital Group and Freedom Mortgage.

By the end of the year, Valon expects to service more than 20,000 consumers and $6 billion in mortgages on its platform.

Read more: Servicer raises $50 million, takes aim at Black Knight

“I think it’s a clear sign that investors have all been waiting for this as a general idea of business. We are really rethinking and reimagining how servicing is done,” Wang added.

“When you look at traditional services today, the bottom line is charging consumers, because servicers generally have a very thin margin - they’re paid a certain fee by their investors who service loans and service.

“What we are trying to do is to really create a lot of transparency for borrowers; to try our best to be incentive aligned at all times with the borrowers and reduce the number of fees that they’re getting charged.”