Andreessen Horowitz leads $50M Series A investment in real-estate startup Valon to disrupt the traditional residential mortgage servicing industry
Valon, formerly known as Peach Street, is a New York-based real-estate startup and tech-enabled residential mortgage servicer with a mission of improving the homeownership experience through technology.
Today, Valon announced it has closed a $50 million Series A financing to accelerate growth through hiring and building out its operations for acquiring more Mortgage Servicing Rights (MSR). The round was led by Andreessen Horowitz, with participation from prior investors Jefferies Financial Group, and others. To date, the company has raised over $53 million in total funding.
The funding news comes on the heels of Fannie Mae’s approval for the company to service its government-sponsored home loans. Alongside the financing, Valon also announced that Andreessen Horowitz’s General Partner, Angela Strange, and Blend President and ex-Fannie Mae CEO Tim Mayopoulos have joined its Board of Directors.
Founded in 2019, by Andrew Wang, Eric Chiang and Jon Hsu, Valon’s mission is to champion homeowners on their financial journey as the partner they trust with their home and their future. As a former investor in this asset class, Wang was frustrated by the lack of actual service provided by servicers and was unsatisfied with the dearth of options. Chiang and Hsu’s prior product and engineering experience at Google and Twilio, coupled with Andrew’s deep understanding of the complexities of the market, led to the development of the Valon platform which challenges the generations-old status quo.
Valon Mortgage is a Fannie Mae approved, tech-enabled residential mortgage servicer. The company’s mission is to champion homeowners on their financial journey as the partner they trust with their home and their future. Valon is licensed to service in 49 states, with New York expected to be added to the portfolio this year.
“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,” said Valon Co-Founder and CEO, Andrew Wang. “Currently, the largest mortgage servicing software controls more than half of all U.S. residential loans, effectively creating a monopoly in the market. This stranglehold has driven servicing costs up nearly 250% in the past decade, and the fees are passed on directly to the borrower. We created Valon as a challenger brand to address the extreme need for an updated, technology-enabled alternative to keep the borrower better informed.”
According to the Federal Reserve Bank of New York, household debt increased by $87 billion to $14.35 trillion in the third quarter of 2020. The vast majority of the debt increase – nearly $85 billion – comes from mortgage balances as many people moved from dense cities to suburban and rural areas during the pandemic. Unemployment rates soared, and as a result delinquency rates and the percent of loans in forbearance increased rapidly since the start of the pandemic. According to Moody’s Analytics, an estimated 30% of Americans with home loans – nearly 15 million households – stopped paying their mortgage in 2020 due to the economic strain of the pandemic. Later this year, the federal moratorium on foreclosures and hardship leniency for forbearance will expire.
Mortgage servicers collect payments for principal, interest, taxes, and insurance. They are selected by the lender and often change several times over the life of a mortgage. Software to manage these historically manual and repetitive processes saves money for the lender and reduces compliance risks. But the borrower suffers as their loan is passed around among several servicers who can lock in long-term servicing contracts. In fact, the servicers are incentivized and allowed to change fees without the borrower’s consent.
For servicers, there’s little upside to improve the current, antiquated process. On average, it can take up to 18 months for a major bank to switch to competing software. Changing software vendors is a logistical nightmare and fraught with compliance risks. Valon addresses these challenges with a complete vertically integrated stack that provides both borrowers and lenders real-time visibility into their loans. For lenders, this tech-forward and regulatory compliant servicing helps them become more competitive. For homeowners, it provides access to creative bridge solutions, when needed, and eliminates the long cycles and paper-intensive process associated with loss mitigation.
Valon’s software platform delivers a borrower-oriented experience: a simple interface, transparent access to information, and expert customer service. Borrowers have access to self-service features to access their mortgage information and manage their payments from wherever they are. Lenders can request access to real-time API data feeds to view the performance of their borrowers and reconcile transaction data.
The technology has the potential to reduce mortgage servicing costs by up to 50% by vertically integrating the entire process, increasing borrower self-service capabilities, and driving operational efficiency. Its cloud-native platform is built on Google Cloud with security as a first-principle, protecting borrowers with features such as default encryption and intrusion detection. Leveraging the platform’s capabilities, Valon can present a tamper-proof audit trail of all actions done by homeowners as well as servicers. The privacy-by-design technology infrastructure connects loan originators, servicers, lenders and payers and automates the requirements of servicing a mortgage including, but not limited to, disclosures, escrow, loss mitigation, and payoff.
With Fannie Mae’s approval, Valon can service agency-backed residential mortgages. The company has received commitments that will fuel its growth to an estimated $10 billion in servicing volumes in 2021. Valon operates in 49 states, and New York is expected to be added this year.
“Valon has built a mobile-first mortgage servicer from the ground up. Homeowners are faced with clumsy websites, call centers, and often misinformation. 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,” said Angela Strange, General Partner at Andreessen Horowitz who joined the Valon Board of Directors in mid-2020. “The Fannie Mae approval only serves as further validation of the platform the team has created – it meets regulations, and brings a step-function improvement for consumers, for mortgage originators and investors alike.”