Our Investment in RateGravity
Getting You The Rates That Mortgage Brokers Give Their Friends
Buying a home will likely be the biggest financial transaction of your life. Yet even as we continue to see widespread innovation in Consumer Fintech, the mortgage origination industry has been one of the biggest laggards and as a result, the consumer experience has suffered greatly.
For starters, a significant amount of education is still needed for first-time home buyers. As RateGravity CEO Patrick Boyaggi puts it, “homebuyers often don’t know how badly they are getting fleeced” when they end up working with a mortgage salesperson whose incentives are rarely aligned with those of the buyers. Most home buyers also don’t know that mortgage brokers often have a high degree of discretion on rates. Meaning if you’re a “friend of the bank” you get a preferred rate which the broker then averages out for by charging a higher rate to someone who isn’t a friend. Only months or years later do many buyers realize they’re paying too much.
It’s not surprising, then, that mortgage dissatisfaction rates continue to be so high, with the top four bank lenders sitting on single-digit or negative NPS scores. Yet shockingly, ~77% of homebuyers never even apply with more than one lender, according to the CFPB. National lenders are failing at customer service and the mortgage industry writ-large continues to engender a great deal of mistrust. Add to this the fact that 68% of home buyers today are millennials who expect an end-to-end technology-enabled consumer experience and you have the perfect recipe for a promising challenger brand in mortgage origination. Enter RateGravity:
RateGravity aims to solve the huge misalignment of incentives at the heart of mortgage lending where the economics have historically skewed heavily in favor of the mortgage salesperson. For example, an average loan originating salesperson gets paid a 1% commission on the amount of the loan and historically this has driven up the rate the consumer gets quoted as much as 0.5%. While 0.5% may not feel like a lot, over the life of a $500,000 loan this difference can mean up to $15,000 or $20,000 in excess interest.
RateGravity is redefining the process by which consumers finance their homes and are leveraging technology to reduce the reliance on that mortgage salesperson. RateGravity’s platform collects information about a home-buyer in the least invasive and most effective manner. Without needing an SSN or doing a hard credit inquiry, in as little as five minutes, they can pair consumers with the most optimal local lender for their particular home buying needs. Each buyer gets access to an independent and unbiased home-buying expert, which is especially helpful for home buyers navigating this process for the first time.
RateGravity’s partnership with local lenders is an important differentiator from well-known national competitors like RocketMortgage & Lending Tree and they believe this will lead to much better outcomes for homebuyers. In the majority of transactions today, the lender is referred by the real estate agent. Local lenders, in particular, have unique insights about specific financing needs and housing types in their local market and thus can provide more accurate rates than national counterparts. Agents also prefer to work with local lenders because of a history of past deals and higher degree of confidence on getting to a close — which they do not have when dealing with large national lenders.
Local lenders typically have higher service levels and customer satisfaction, but what they don’t have is the capacity to leverage high-commision salespeople or market themselves digitally to millennial homebuyers. RateGravity bridges the gap by bringing new business to these local lenders and as a result negotiate preferred rates on behalf of the homebuyers. Having grown largely by word of mouth to date, RateGravity is proud to say they have an NPS of 93 and work closely with some of the best local lenders in Massachusettes.
We were also amazed to learn that, 1 out of 4 loans that starts with a national lender, doesn’t ultimately close with that same lender because of issues including poor pre-approval screening or low appraisals. Often the real estate agent will try to steer their client towards a local lender for the reasons above, and as a result, these agents have become a strong channel partner for RateGravity as well.
We’ve often written about how important Founder-Market Fit is for LaunchCapital when we make an investment and in meeting the RateGravity team, we really appreciated that high level of domain expertise. As executives at Leader Bank, co-founders Patrick Boyaggi and Mike Tassone saw this misalignment of incentives first hand and jumped at the opportunity to bridge a critical divide between homebuyers and local lenders, with a core focus on providing independent, unbiased advice to their customers. Over the last 15 months, they have originated over $200M in loans and have saved their thousands of customers over $10M in excess interest — operating just in the Massachusettes area.
Over the coming months, RateGravity will expand as a licensed mortgage broker across New England and the Mid-Atlantic on their way to larger markets such as Florida, Texas, and California. Importantly, Patrick and Mike have surrounded themselves with an experienced team of product experts and technologists as well as performance and brand marketers to best serve the needs of their homebuyer customers and lender partners and better tell the RateGravity story as they expand.
We’re so excited to invest alongside great investors like Listen Ventures, Link Ventures, Accomplice’s BOSS syndicate, and Techstars Ventures to support Patrick, Mike and the team as they build a mortgage lending business that sits on the same side of the table as the home buyer as he or she makes one of the most important decisions of their lives.
If you’re looking to buy a home and need a mortgage, we urge you to check out RateGravity and speak to a home-buying expert about getting a rate from a great local lender. Also, if you’re at a company that is interested in holding an educational seminar on navigating the home buying process for your employees, reach out directly to the RateGravity team here to set it up!