Reinventing mortgage with Ardley
Mortgage automation so good, you can Ardley believe it.
An interesting aspect of fintech investing is the need to understand how well a product will perform (and how it will create value for its customers) in various economic environments.
The mortgage industry is a great example — when rates increase, consumer buying power goes down, putting home buying out of reach for many and reducing the overall number of mortgage originations.[1]
This was particularly evident in 1981, when U.S. mortgage rates skyrocketed to the highest they’ve ever been at 18.45%, as the Federal Reserve was trying to combat double-digit inflation. The New York Times reported in October 1981 that home sales had plummeted to the lowest level since 1974. According to the article, the National Association of Realtors estimated that “95% of American households were still effectively excluded from buying a house because of high mortgage rates.”[2] While 1981 was an extreme situation (mortgage rates have never been this high since — the average since 1990 is 5.95%[3]), it is a clear example of how fluctuating rates impact both the industry and potential home buyers.
Today’s Challenges for Mortgage Companies
In the past year we’ve seen another swing in mortgage rates, though not nearly as pronounced as in the 80s. Rates hit a low of 2.65% in January of 2021 and then climbed to 5.81% in late June of 2022.[4] So how do mortgage companies (originators, servicers, and investors) deal with fluctuation in rates due to broad macroeconomic shifts? The industry standard is to hire and fire loan officers with changes in the housing market. For example, if rates are low and people have tremendous buying power? Hire a full team of loan officers to serve all the customers and close as many loans as possible. If rates rise and homebuying slows? Cut way down on your number of loan officers to save costs and hope to ride out the storm. This pattern has been pronounced recently: as the Fed continues to significantly increase rates this year, we’ve seen a recent wave of layoffs by JPMorgan, Wells Fargo and other banks in their home lending divisions.
In addition to challenges with fluctuating rates, mortgage companies are also dealing with the fact that the cost to originate has more than doubled in the last decade to $9,000 per loan.[5] These combined issues present a significant opportunity for tech products that help mortgage companies cut costs and sustainably deal with market fluctuations.
Enter Ardley — An Automation Engine for the Future of Mortgage Tech
Ardley is a tech company based just outside of Washington, D.C. that has built a complex mortgage automation tool that can complete ~90% of loan officer tasks across a variety of different mortgage products, including origination, refinances, home equity loans, and home equity lines of credit (HELOC).
The traditional way of underwriting and originating a mortgage is centered around a loan officer, who manually collects borrower information through a Point of Sale (POS) system (like publicly traded Blend) and enters it into a Loan Origination System (LOS) (like ICE of publicly traded Intercontinental Exchange) to accurately structure the loan — along with doing a bunch of other compliance work.
Ardley’s proprietary loan pricing and structuring engine extracts borrower information directly from captive sources, and can price and structure a real mortgage offer that is delivered directly to the consumer and pushed directly into the LOS for closing and disclosures.
Ardley’s product creates real value for the customer (mortgage originators and servicers), who can save on their biggest expense component — loan officers cost mortgage companies $23B annually. But it also creates real value for the customer’s customer, the borrower. If you’ve dealt with a mortgage or refinance you probably remember how drawn out and time-consuming the process can be.
The efficiency and speed that Ardley’s tech platform brings to the mortgage process is every borrower’s dream.
And the best part is that Ardley’s suite of products is already proving valuable even with broad macroeconomic changes affecting the housing market. For example, when interest rates are low, Ardley’s customers can automate 90% of the refinance process for standard loans and have their loan officers focus on more challenging mortgages. As interest rates are rising, their platform can seamlessly shift to focus on the type of loans that make the most sense in this market, like cash out refinances or HELOCs.
Ardley and Cortado
Cortado couldn’t be more thrilled to have led Ardley’s Seed round late last year. The team is led by technologist and Fannie Mae veteran Nate Den Herder, who started building the product in his basement back in 2018 after realizing how far behind the mortgage industry was falling in terms of tech development. The executive team and advisors have a combined 80+ years of expertise across mortgage technology and have a deep understanding of customer needs, mortgage processes and infrastructure, and the surrounding regulatory environment.
The team of 13 operates with a remote-first mentality, hiring the best people they can find from all over the country. Two of their key employees are based here in Oklahoma and are lifelong Oklahomans. Bartlesville-based Taylor Potter serves as Ardley’s Head of Operations and has been part of Oklahoma’s entrepreneurial ecosystem building efforts for over a decade.
The current market can be intimidating for a lot of us in the tech and venture world, but Ardley is positioned well for this environment. What the mortgage industry has been missing to date is the ability to respond in real-time to shifts in the market, and Ardley allows them to do just that — closing more loans while also cutting costs. With strong fundamentals and a top shelf team, we are bullish on Ardley and can’t wait to see what they do next.
[1] https://www.opendoor.com/w/blog/impact-of-interest-rates-on-home-ownership
[2] https://www.nytimes.com/1981/10/27/business/home-sales-lowest-since-1974-level.html
[3] https://fred.stlouisfed.org/series/MORTGAGE30US
[4] https://themortgagereports.com/32667/mortgage-rates-forecast-fha-va-usda-conventional
[5] MBA Quarterly Mortgage Bankers Performance Report Q4 2021
About Cortado Ventures| Cortado Ventures is an early-stage venture capital firm that invests in ambitious, growth-driven companies to define a new generation of economic prosperity for the Midcontinent region.
As one of the largest VC funds in Oklahoma, Cortado’s focus is on tech companies bringing innovative solutions to the energy, logistics, life sciences, aerospace, and the future of work sectors. For more information, visit cortado.ventures.
