The US housing market is booming as a result of the pandemic. While rising house prices pushed many people out of the market, it has been very lucrative for those who own real estate. Attractive returns in this sector have attracted more investors to the market, but the processes involved in buying investment property are still expensive and somewhat outdated.
Vontiv, an embedded real estate investment mortgage platform that just emerged from stealth, is trying to streamline some of these processes by helping mortgage lenders modernize their technology. The startup, founded by former Palantir engineer and Freddie Mac executive, is taking a data integration approach inspired by the data giant and applying it to real estate capital markets, co-founder and CEO Charles McKinney told gaming-updates.
McKinney first met Vontiv co-founder and CTO Shreyas Vijayakumar when Palantir partnered with Freddie Mac to develop mortgage management technology during the US housing crisis. They decided to team up to create a company that would help modernize the highly fragmented real estate investment market.
So far his method is working. Vontiv has been profitable over the past year, with a 900% year-over-year growth in gross trading volume, according to McKinney.
The consumer and commercial mortgage space has embraced technology faster than the investment mortgage space, McKinney said, citing examples from Sally Mae’s digital lending system and the Fintech Blend real estate mortgage application.
“If you look at the space we’re in, no one really sets the standard and we think it’s pretty much a technological divide. When you’re dealing with small loan amounts, like houses with one to four apartments, you have to actually build the technology to accept the loan application, guarantee it, create the loan, etc. In other words, fulfill the contract. . Standardize – and allocate loans to financial institutions or capital markets,” he said.
As a result, access to capital could be a major hurdle for real estate investors, McKinney said.
“The first problem we are addressing is very complex, very expensive debt because the market is fragmented. So imagine you are buying a house to renovate and then renting it out. For example, imagine that you pay a year’s worth of a credit card mortgage if you don’t default. It’s incredibly expensive,” McKinney said.
According to McKinney, Vontiv’s solution targets two different groups. The first category includes what the company calls “retail partners,” including entities such as banks, credit unions, real estate technology companies, or B2C brands. He said Vontiv is offering these groups a no-code solution that allows them to open their own real estate investment mortgage company in less than a week.
McKinney shared an example of how affordable housing startup PadSplit used Vontiv’s no-code solution to launch its own investment mortgage offering in less than a week. PadSplit, like Vontiv’s other retail partners, was aiming for two outcomes: it wanted to increase the success rate of its home acquisitions and add an additional revenue stream by offering mortgages directly to investors on its platform.
“These retail partners can focus on customer acquisition and we’ll do the rest to pay off the mortgages,” McKinney said.
While the no-code solution helps companies attract real estate investors, the second pillar of the Vontiv platform targets the other side of the market: liquidity providers. These financial institutions have a very different set of needs and concerns, McKinney said. He said lenders such as Barclays and Colchis Capital are among the clients of Vontiv’s financial institutions, or “capital partners”.
“Financial institutions have historically had no choice but to allocate capital on a large scale and earn positive returns after adjusting for inflation. Real estate investing is a trillion-dollar market, but companies like Colchis Capital or Barclays don’t have the ability to leverage the capital and profit from mortgage financing provided to real estate investors through their retail partners, McKinney explains.
That’s where Vontiv’s other flagship product can help, and that’s where the company’s Palantir-inspired approach comes in handy too. The company has developed technology to automate and standardize the underwriting process by incorporating all relevant information, including contracts, additional documents and risk attributes, into a “strongly structured data model” that makes lenders more efficient and saves money.
“This allows us to do this, allows us to provide credit, profitable, profitable assets to our capital partners. It also allows us to eliminate manual middlemen who typically manually renew each mortgage,” McKinney said, typically charging the lender 2% to 3% of the loan amount.
He said that time is of the essence for real estate investors.
“If it’s a homeowner deal, everyone understands that you’re getting a Fannie Mae or Freddie Mac mortgage, and it takes a few weeks. But when an investor buys a property, he competes with other investors who often come and agree to pay in cash, so [investors] Should be as easy and fast as cash closing. So one of the things that really sets our technology apart is that we’re cutting down on the time it takes to close a mortgage, with banking quality being fully implemented in weeks to days,” McKinney said.
Rapid adoption may be worrisome given the context of the 2008 housing crisis, but McKinney brushes aside those worries, citing the track record of Vontiv’s algorithms. He said the platform has closed more than $600 million in mortgages so far using its algorithmic underwriting technology, and only three defaults have been recorded in total. This is an impressively low rate, which McKinney attributed to the low risk of borrowers looking to purchase investment property rather than a primary home.
McKinney said Vontiv has about 12 retail partners today and plans to roll out its no-code embedded mortgage solution with five more “very soon.”
The startup says it has raised $135 million in a Series B round — $25 million in venture capital and $110 million in debt — to grow its business. The company said Zig Capital led the round, with other investors including Founders Fund, Goldcrest, XYZ Venture Capital, 8VC, Nine Four Ventures, Village Global, Godfrey Capital and LeFrac Organization.
McKinney said it has used some of its funding to double its workforce to 78 over the past three months. He added that in the coming months, Vontiv plans to expand its go-to-market team and focus on building a partner network.