Valon Secures $50M Series A Funding - Revolutionizing Mortgage Servicing
The Challenges of Mortgage Management and a New Approach
Applying for a mortgage is often cited as a particularly frustrating experience. Managing payments and navigating customer service throughout the loan term can also present significant difficulties.
Consequently, substantial investment is currently being directed towards innovating within this sector, with the aim of streamlining processes, increasing digitization, and enhancing transparency.
Valon Mortgage Secures $50 Million in Series A Funding
Valon Mortgage, a technology-driven mortgage servicer, has announced the successful completion of a $50 million Series A funding round. This represents a considerable sum, even within the current investment climate.
Andreessen Horowitz (a16z) spearheaded the funding for the New York-based company, which was previously operating under the name Peach Street. 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 contributed to this financing.
Prior to this, Valon had secured $3.2 million in seed funding from investors including Kevin Ryan’s Alley Corp., Soros, Kairos, and Zigg Capital.
Addressing a Market Imbalance
Founded in June 2019 by Andrew Wang, Eric Chiang, and Jon Hsu, Valon was established with the goal of disrupting what the founders perceive as a monopolistic market. They identify the largest mortgage servicing software company, Black Knight, as controlling over half of all U.S. residential loans.
“We are approaching a potential mortgage foreclosure crisis similar to that of 2008, and a large proportion of homeowners facing payment difficulties are unaware of available options,” stated Valon CEO Wang. “This dominance has resulted in a nearly 250% increase in servicing costs over the past decade, with these costs ultimately borne by the borrower.”
Fannie Mae Approval and Growth Trajectory
Recently, Valon received approval from Fannie Mae to service government-sponsored home loans. This approval is expected to significantly accelerate Valon’s expansion, according to Wang.
“We’ve progressed from having no committed contracts to securing $10 billion in mortgages committed for servicing within just one year,” he revealed to TechCrunch.
Valon currently operates in 49 states, with plans to include New York within the current year.
The Genesis of Valon
Drawing on his experience as a former investor in the mortgage servicing sector, Wang expressed dissatisfaction with the level of service provided by existing servicers. He subsequently collaborated with Chiang and Hsu, leveraging their prior product and engineering expertise gained at Google and Twilio, to launch Valon.
The company’s cloud-native platform is designed to deliver a borrower-centric experience. Furthermore, lenders can access real-time API data feeds to monitor borrower performance and reconcile transaction data.
Servicing vs. Origination
It’s important to distinguish between mortgage originators, who provide the initial loan funding, and mortgage servicers. A mortgage servicer manages the loan for its duration – typically 15 to 30 years.
“This encompasses tasks such as collecting payments on behalf of the lender and offering assistance to borrowers during times of financial hardship,” Wang explained. “Traditional mortgage servicers often rely on outdated technology and deliver subpar service. Valon aims to change this by providing transparency and comprehensive self-service capabilities to homeowners.”
Potential for Cost Reduction and Enhanced Security
Valon asserts that its technology has the capacity to reduce mortgage servicing costs by as much as 50% through vertical integration of the entire process. The platform is built on Google Cloud, prioritizing security with features like default encryption and intrusion detection.
The Impact of the Pandemic
In 2020, millions of Americans experienced mortgage payment difficulties due to the economic consequences of the coronavirus pandemic, leading to increased requests for forbearance and foreclosure moratoriums.
“The pandemic underscored the existing stresses within the market and accelerated the need for a modern mortgage servicer,” Wang stated. “Homeowners faced significant financial challenges and struggled to obtain appropriate assistance from existing servicers due to their outdated technology and limited processing capabilities. We anticipate that forbearance and foreclosure leniency will diminish in 2021, further intensifying this need.”
Industry Validation and Future Plans
Angela Strange, a general partner at Andreessen Horowitz and a member of Valon’s board since mid-2020, highlights that Valon has developed a mobile-first mortgage servicer from the ground up.
“Homeowners often encounter cumbersome websites, call centers, and inaccurate information,” she noted in a statement. “Valon provides a trustworthy, software-driven advisor capable of delivering clear, transparent, and compliant information, both in favorable and challenging circumstances – without requiring a phone call.”
The Fannie Mae approval is viewed as further validation of the platform developed by the Valon team.
Valon intends to utilize the new funding to triple its workforce to approximately 100 employees by the end of the year, and to acquire additional mortgage servicing rights (MSR) contracts.