Very few consumers review the mortgage application process as a high water mark in their lives.
Finding that perfect home can be fun and exciting – but for the majority of consumers who need to apply for a mortgage loan in order to actually live in it, that fun quickly turns to frustration.
Lenda CEO and co-founder Jason van den Brand told PYMNTS that the 90 percent of customers who start their home mortgage search online quickly find that there’s little about the process that is digital, fast or efficient.
“Consumers often end up with misinformation, their data gets sold off to the highest bidder, they find themselves getting telemarketed to death, asked for paperwork in an unsecure way, have paperwork sent to them via mail in an unsecure way, and end up chasing down suddenly important documents at the last minute,” said van den Brand, adding that after all of that, they are still unsure about how much they will pay each month until the very end of the process.
No wonder, he said, that people regard buying a house as life’s third most stressful event after having children and getting married.
More than stressful, van den Brand noted, it’s unnecessary in the digital age – and even “kind of strange." It’s unusual, he explained, for consumers to accept the level of uncertainty over a monthly payment that they will be paying for 10, 15 or 30 years until they are literally signing on the dotted line, much less the fact that the entire process takes months to complete. But somehow, van den Brand said, customers have been trained to accept it as a normal part of doing business.
It’s an expectation that he built Lenda to solve.
“We built a lending platform to listen to customers, so they can shop for a mortgage online the way they shop for everything else online,” van den Brand explained. “Consumers plug in the information we need, and we do the underwriting and give them back a monthly payment that is accurate.”
All in five days.
Transparent and honest is Lenda’s brand, according to van den Brand. Their smart algorithm-enabled platform was built to do one thing really well: get all the information it needs upfront, and get that information to the consumer so they know how much they can borrow and what they can expect to pay per month – all about 30 seconds into their underwriting journey.
Outside the Underwriting Black Box
Lenda is a lender, van den Brand pointed out – not a mortgage broker that earns commissions by farming out borrowers to lenders.
“Mortgage brokers gather all your information and then send it off to someone else to process," he explained. "That is the root cause of why customers have all these trailing documents. The model perpetuates that, and it perpetuates consumers paying commissions and fees – because all the points in the chain are trying to make some money.”
Moreover, he noted, this model is slow, because the process involves so many back-and-forth hand-offs of data. On average, consumers can still expect a two-month waiting period for a deal to close.
And in many cases, van den Brand warned, just skipping a broker and going directly to a bank won't improve the experience of the mortgage customer all that much.
“The dirty secret of the mortgage is that it costs banks $9,000 to produce one of these loans," noted van den Brand. "They have to put a profit margin on top of that, and so who is paying for that? The customer is. And in a mortgage, they are paying by having a higher interest rate or with additional fees. That’s it.”
Technology, he said, removes a lot of those costs by removing the factor of commissions for referring the mortgages – and then leverages the efficiency improvements of automation and digitization. As a result, the cost to produce the loan goes down by half. Customers get a lower rate and, more importantly, they get a non-mysterious quote. Whatever Lenda told them they can borrow and expect to pay is what they can borrow and expect to pay.
Meeting the Challenges as Growth
The goal now, van den Brand noted, is to expand their product into wider territories. Lenda launched in 2014 in the state of California, and from there expanded into four more states: Oregon, Washington, Colorado and Texas.
Following a $5.2 million Series A funding round that closed earlier this year, those funds will go toward the next round of expansion for the up-and-coming mortgage underwriting firm – into Illinois, Pennsylvania, Michigan and Arizona.
“Suddenly, this experience is now going to be in over 50 percent of the U.S. mortgage market. I can't believe it, my baby is growing up,” van den Brand joked.
More seriously, he noted that the goal for Lenda is 100 percent of the market served in all 50 states – though getting there has its challenges.
“As of today, we are in nine states," he said. "It ultimately depends on the states and their rules. For example, we know for a fact that it will take the longest to get into New York state. Some states will take longer than others. So, we work with regulators, we talk to the licensing officials – and we believe in being as transparent with them as possible. And we are pro-consumer – we save customers money, which regulators like.”
It helps that they can show their data – particularly, that they can show how through technology, they are able to save consumers $50,000 over the life of a loan in fees alone.
“That’s good for the economy," van den Brand pointed out. And it’s good for consumers, who will likely face the process of purchasing a home in their lifetime. Lenda, he notes, just wants to create a better option for doing so.
“Our hope is that as more and more of these eyeballs are hitting the internet and looking for a better and more transparent option, they are going to find us," van den Brand said. "And I can’t lie to you – that is just very, very exciting.”