In this episode, we cover:

• 00:00:00 - Reflections on the Episode
• 00:03:15 - What is Mortgage Servicing
• 00:13:20 - Impact of the Great Financial Crisis 
• 00:18:40 - Andrew’s Background
• 00:24:10 - Valon’s Technological Innovations 
• 00:31:06 - Relationship with the Consumer 
• 00:36:00 - Regulations and Regulators 
• 00:40:40 - Valon’s Future/Outro

Links:

• Website: Valon

Transcript

Jason: Welcome to the Perfectly Boring podcast. Today we have Andrew Wang, CEO of Valon, on the show, and today we’re taking on the topic of mortgage servicing. So quickly, what is mortgage servicing?

Well, a mortgage is obviously a loan for a home. And mortgage servicing is the institutions that actually take care of paying off that loan over the 10-, 20-, 30-year timeline. So, that digital interface where you pay your bill, et cetera, that is not always your originating bank. And Andrew is building a fascinating business in this space. We learned a lot about the mortgage, the evolution of the mortgage servicing space over time, the impact of the great financial crisis, and the interesting approach Valon is taken, not only just with technology, but changing the relationship with the end customer. So, what were some of the interesting touch points that we got during the conversation, Will?

Will: It was a really wild discussion because I started with a fairly preliminary understanding of what mortgage servicing was. And in part of the wind up that listeners are going to get an opportunity to hear, Andrew really gives us a perspective as to how critical mortgage servicing is to the underlying health of the US, and therefore global, economy, and how much of an afterthought mortgage servicing has historically been, and why that should not necessarily be the case, and why now is the, sort of, unique moment in time to be able to use advanced technology and a reorganization of the overall stack for mortgage servicing to bring a better product to market for both consumers, for originators, for investors, and for regulators. And so, I mean, really badass discussion, really cool company, a space most people never think about, definitely a boring space, but with a just immense amount of value to be created.

Jason: Yeah, and hopefully our listeners go through kind of the same increase in excitement that I had during the conversation, which is you kind of over time just realize this entire industry of mortgage servicing, not only is it critical, but how much they’re missing the actual point which is, if you really just focus on the homeowner and creating a great experience for them, this is a huge relationship, it’s a multi-decade relationship, and there’s probably not just one product you can offer them. But they’re stuck in the staid and stodgy technology of yore, and haven’t been able to move as quickly and break through to open that aperture and open that relationship with their customer. So, before we get too deep into the weeds, let’s just jump into the interview. Here’s Andrew.

Will: Andrew Wang, founder and CEO of Valon, thank you for being on the podcast with us today to talk about the very boring, very large industry of mortgage servicing. For the benefit of our listeners, it would be good to start at a really high level and give people kind of a baseline for what mortgage servicing is, and maybe a little just on the history of the mortgage servicing industry, you know, before we dive in a little bit on the specifics of your background and Valon.

Andrew: So, mortgage servicing is a sort of pervasive thing that exists throughout the mortgage ecosystem and in the lives of most American homeowners, but it is also just not very well understood in terms of the dynamics that are involved with mortgage servicing in terms of who’s involved, how they’re involved, and exactly what they do. But again, nonetheless, it’s something where it’s within every part of the mortgage ecosystem today. But to give you some background on mortgages and how mortgage servicing even is a real thing, let me first talk about the mortgage industry as a whole. When you think about the mortgage industry, it’s obviously a very large component of the American economy today. When people look at it, they say, “Hey, 20% of GDP in terms of housing,” something that the US government often uses in order to boost spending; they lower our mortgage rates in order to cause people to have more savings and then spend on other things. It’s just a very, very core piece of the American ecosystem.

But it actually came into play really, during the depression, the Great Depression, were effectively pre the Great Depression, mortgages weren’t really regulated all that much, and as a result, there were kind of weird, funky structures, even crazier than what people saw in 2007. And as a result of that and as a result of all these people who weren’t able to pay their mortgages due to these balloon loans being in place, which are basically loans that don’t amortize, and basically become due and payable at a certain point in time, what the US government did as a function of the New Deal was put these government institutions into place to create more affordable housing structures, to create these institutions who would really regulate the housing market, or really add liquidity into the housing market so Americans could actually own a home.

Will: And that kicked off the current, almost philosophical ideal that we have today about homeownership kind of being the epitome of the American dream. This was—the mortgage was almost an invention to bring that to fruition after World War Two?

Andrew: That’s exactly right. So, after World War Two, it became more and more core to the American dream. When everybody talks about, “Hey, what is the American dream?” It’s obviously being able to get further in life based on your own merits, it’s about owning a home, and starting a family, building a community, all of those different things, and the home is just so central to that dream. But exactly to your point, it started from post-World War Two.

By the 1990s, it became such a large component of how the US economy even functioned and worked that there was more and more so this focus on affordable housing, putting people in homes, putting people in sort of a structure that creates the ability, creates stronger communities, and create a more robust ecosystem within cities, within neighborhoods, and everything else. So, that’s how mortgages became so intertwined in the American system versus, you know, other countries, which may have relatively high homeownership rates, but just not nearly as high as the United States. That’s, like, the genesis of how mortgages became a big component of it. The mortgage servicing aspect of it actually wasn’t as relevant of a thing, that became more of a thing, actually, after the great financial crisis, the GFC. So pre-2008, what ended up happening was actually that most people when they got a mortgage were serviced by the same people who gave them that mortgage. So, you had Countrywide, you had some of these older institutions which have since gone bankrupt or have been acquired by more older financial institutions, servicing the mortgages. So, it wasn’t really a separate thing, for the most part, at that point in time, and it wasn’t really an important topic, actually.

Jason: Before we go too deep, maybe you can define servicing. Like, how does that show up in the average Amer...