Introducing Valon: Building the Mortgage Servicing Industry from the Ground Up
By Josh Dart, Partner at WestCap and Omar Raucci, Vice President at WestCap
At WestCap, we’re passionate about investing in technology platforms that aim to become the system of record for industries that either lack software tools entirely or are hamstrung by outdated systems. Some illustrative WestCap investments include FLYR (travel / transportation), Peek (tours / activities), Addepar (wealth management), and Qualia (real estate title / escrow). Today, we are excited to announce our latest partnership with Valon, a cloud-native technology platform that is transforming the antiquated industry of mortgage servicing.
Mortgage Servicing – Overlooked, yet Mission Critical Part of the Mortgage Industry
Despite fulfilling a significant role in the $12T+ mortgage market, mortgage servicing remains remarkably inefficient. At a high-level, mortgage servicers provide a link between homeowners and the mortgage owner, fulfilling various client services like payment collection and remittance, ongoing reporting and managing loan performance in a regulatorily compliant manner.
Increased scrutiny post Global Financial Crisis led mortgage servicers to scramble to adhere to the new and evolving rules and regulations. Instead of building scalable technology, they have resorted to adopting interim solutions and hiring more people to service fewer loans. The chart below from the Mortgage Bankers Association shows that the cost of servicing both non-performing and performing loans has more than tripled since ‘08, which can be largely attributed to the decreasing number of loans serviced per person, as mortgage servicing has become increasingly manual and labor-intensive.
At the time of mortgage origination, the cost to service the loan is factored into the rate the customer pays – but oftentimes, the mortgage servicer is not the same party that originated the loan. The mortgage servicing rights (MSRs) can be sold to third-parties who then assume the responsibility to service the loans. Not only does this confuse borrowers, but the borrower is now tied to a separate entity (third-party servicer) as their ‘guide’ throughout the homeownership journey. As margins have compressed, these third-party servicers are consistently looking to cut costs, leading to a void of investment in technology and a subpar customer experience. Borrowers must endure call-centers and long hold times to get answers to rudimentary questions about their mortgage. This is in stark contrast to the way other categories in financial services have adopted technology to provide a more digital experience to consumers.
Feedback from mortgage servicers and other ecosystem participants on existing software tools highlighted that they largely function as loan accounting systems:
They do not manage workflows nor have the ability to move money
They require a growing number of “other systems” to complete the servicing workflow, resulting in additional inefficiencies
They operate as walled-off silos which limits the ability to leverage data to streamline or automate workflows
They are largely on-premise implementations requiring customers to maintain sizable tech teams to problem solve and update their systems
As the regulatory landscape continues to evolve and consumers increasingly demand digital experiences, it became evident that the servicing platform of the future cannot add incremental features or improvements to the existing infrastructure, but rather must rebuild the very infrastructure servicing relies upon from the ground up.
Enter Valon, the Mortgage Servicing Software Platform of Tomorrow
Unlike incumbent systems, Valon’s proprietary servicing software is built fully in-house, which means they have one system and one source of truth. This approach allows Valon to solve for both an excellent customer experience and an efficient servicing workflow. The Valon platform handles all key functionality including, but not limited to, workflow management, compliance, accounting, money movements, and customer management.
The following is a simplistic and non-exhaustive list of some of the benefits from this approach:
- Homeowners see fewer inconsistencies between information provided to them and have more information available to them online
- Customer support is able to handle more complex questions and drive higher first call resolution with access to relevant information in a unified platform
- Back offices can process loans more expediently and with fewer errors, using one source of truth with consistent and correct data
Put differently, Valon allows mortgage servicers to work more efficiently with more transparency, automated workflows and ultimately better customer experiences.
When we met Valon’s Founder and CEO, Andrew Wang, several years ago, we knew that building technology to redefine mortgage servicing would be a challenging endeavor. First, this is a complex technical build that requires not only immense engineering talent, but also domain expertise given the myriad of rules and regulations that need to be factored in. Second, once the technology is built, one then needs to get licensed in all 50 states and receive multiple government approvals. Third, most potential clients will require a significant track record underpinned by regulatory approvals given the harsh penalties associated with infractions. Finally, if you’re able to execute on the above and achieve relevant scale, you’re up against vast ecosystem inertia.
As Valon continues to demonstrate superior operational and customer satisfaction metrics at an attractive price point, the ROI would upend the inherent ecosystem interia and the impact could be profound. Already, the team has defied expectations by not only building a highly differentiated technology platform, but also achieving substantial market share just two years after it formally began commercializing. Notably, Valon has become the first fintech servicer to be approved by Fannie Mae, Freddie Mac and FHA as a licensed mortgage servicer in all 50 states. In the past year, Valon has grown its book of business by 400% and is now a top 15 subservicer in the U.S., making it one of the fastest growing fintechs we’ve come across. Importantly, this growth has been underpinned by required regulatory approvals / audits, continued delivery of superior economics to mortgage investors, and industry-leading customer satisfaction scores for homeowners.
As the lead investor in this new round, we look forward to joining the Valon team and look forward to supporting the company’s mission to build the mortgage servicing platform of tomorrow. Over the coming months, we’re excited to partner with Valon as it onboards the backlog of customers waiting to move their loans onto Valon’s platform, further builds out its software platform to support new loan types and further increases automation, and expands its consumer offerings in property insurance and property tax appeals.
To join Valon in building the future of homeownership and explore career opportunities, visit www.valon.com/careers.
