Alternative lending has created a new benchmark in borrower experience, especially in the consumer lending space. The fintech lending industry seems to be lagging behind in the mortgage industry, and especially jumbo loans (mortgage loan with strong credit quality where the amount exceeds conventional conforming loan limits), due to their nonconformity with set income and credit patterns. Neat Capital is a Boulder, Colorado-based alternative mortgage lender that understands the massive market opportunity the above issues represent. It is focused on creating a digital lending platform for mortgages that is fast, reliable, paperless, and value-accretive for borrowers.
Streamlining Mortgage Lending Underwriting
Founded in 2015 by Luke Johnson, Chad Lewkowski, Christin Price, Ryan Brennan, and Steve Herschleb, the company wanted to deliver a modern approach to mortgage lending centered on making it simple, unique, and transparent.
Underwriting and loan documentation is considered a back office process in traditional banking. Neat Capital is trying to bring this core activity online and looking to capture the loan documentation, underwriting, and loan selection process in one single online session for the client. This facilitates a hassle-free experience for the client and better conversion rate for the startup. It has been able to bring down the entire cycle to 13 days as compared to the 30-60 day norm in the jumbo loan industry.
The company has raised a total of $4.2 million in two funding rounds. Its angel round saw an investment of $2 million. But the company had to face a major crisis in December 2016 and was on the brink of shutdown before it could recover. At the same time, Luke Johnson, CEO and founder, faced a personal tragedy with his wife battling brain cancer. But the employees, investors and other stakeholders stuck together and fought hard to become the fastest lender in the U.S. for jumbo loans.
How Neat Capital is Different From Most Mortgage Lenders
The traditional mortgage lending process is recursive in nature. It involves sending information and documents to underwriting, following up with clients for clarifications, and if the underwriter does not like it, it results in rejection or a change in terms. The whole process is susceptible to getting bogged down on a regular basis, which leads to delays and surprises. So the secret sauce for Neat Capital is to break down this unproductive cycle and provide certainty at the outset in a single online session. The company is unique because it can evaluate a loan in real-time according to a very detailed underwriting guideline and with a high degree of accuracy due to its proprietary artificial intelligence algorithms.
Another USP is its ability to handle borrowers with complicated income streams, net worth, and credit who can’t be analyzed on normal mortgage parameters. The company funds from its balance sheet, but it resells loan into the market almost immediately to free its balance sheet for expansion.
Neat Capital is focused on high quality credit with a weighted average FICO (Fair Isaac Credit Organization) score of 766 and weighted average LTV (Loan To Value Ratio) of 72%.
Neat Competitors and Customers
Alternative lending has seen traction with players like Better Mortgage and SoFi targeting the same clientele. But Neat Capital believes there is a huge addressable market, and it is incumbents like Wells Fargo that are its biggest competitors.
Its typical customer usually has an owner-occupied unit in San Francisco. It also has clients looking to buy second homes or investors looking to buy houses as a real estate play. But it is not restricted to any particular category and covers all conventional mortgage options, as well.
The Future of Mortgage Lending
The mortgage industry has gone online and the application process has moved entirely onto digital platforms. The winner of the market will be the player who can execute the entire loan application process in one single session versus the current scenario of requiring multiple sessions for loan application closure. Also, the industry needs to be ready for a smartphone future where the first and only point of contact between the platform and the borrower would be a smartphone. The application engine needs to be smartphone-powered so that the platform is not losing clients to other smartphone-ready peers.
The company’s future plans are to cover the entire spectrum of conventional Fannie Mae loans to jumbo loans. Instead of focusing on yield expansion or going down the credit quality ladder, the company will aim to concentrate its bets in niches where it believes that other lenders have mis-priced the risk.
Neat Capital also needs to grow while educating clients and referral partners, wealth managers, real estate agents, and employers about why they are different and what is their unique selling proposition. Currently, the company operates in nine states, but it is planning to double that number in 2018.
Neat Capital has focused on a market gap in mortgage lending that has been overlooked by the alternative lending industry. The challenges due to non-conforming loans and income streams & net worth not falling under typical lending patterns made it difficult for players to successfully compete with traditional banks. Neat Capital seems to have solved this problem. A 13-day turnaround for an industry that usually sees transactions taking months to close will definitely revolutionize the market.
Written by Heena Dhir.