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Start-Ups Lenda, SoFi Reconfigure Mortgage Refinancing

April 20, 2015
Managing Your Mortgage, Mortgages
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Few money moves are as complicated as a mortgage refinancing. And even fewer are as important.

That’s why companies like Lenda and SoFi have come up with faster and cheaper ways for consumers to refinance their homes.

While a $300,000 refi using a traditional lender can drag on for months and typically cost 3% to 6% of the loan value, the average spent on a Lenda refi is about $800, according to the online-only operation’s website. Completing a refinancing can take just two to three weeks.

For borrowers like Kevin Wofsy, a San Francisco homeowner who turned to Lenda for his fifth refi in 13 years, the result was a more streamlined, enjoyable experience.

“It feels weird to say, but it was actually a pleasure to go through the process,” Wofsy says.

Accelerating the process

Over dinner with a friend who planned on refinancing a home loan later that week, Dan Macklin, a SoFi co-founder and its vice president of business development, suggested his pal needn’t wait. He urged him to try the SoFi site and apply on the spot.

“So he took out his phone, and literally within 60 seconds, received a rate,” Macklin says. He says his friend was amazed that SoFi had a loan at a rate that was half a percentage point lower than what he was paying at the time.

Like Macklin’s friend, SoFi users can apply for loans using a desktop or mobile device to enter personal information and submit an application in as little as a minute. They are then presented with instant, individualized mortgage rate quotes.

The company uses a unique evaluation process that takes into consideration borrowers’ credit history, income, educational background and employment status. Highly qualified customers can borrow as much as 90% of a property’s value up to $5 million using SoFi.

SoFi is a marketplace lender, meaning it’s open to accredited investors, both on the individual and institutional level. However, SoFi self-funds the majority of its products, including student loan refinancing, personal loans and more. It’s the country’s largest provider of refinancing for education debt and has issued over $2 billion in all types of loans.

All-digital process lowers fees

Lenda, meanwhile, has digitized the entire refi process, enabling borrowers to compare loan options, apply and upload documents on its website. By bringing the entire experience online, the platform has sharply reduced its overhead. It doesn’t have to pay for physical branches or hire loan officers. These factors all contribute to lower fees for borrowers.

Lenda also provides the kind of around-the-clock access to its products that bricks-and-mortar lenders simply can’t offer, a huge plus for busy consumers.

“Imagine if you were a person who works the night shift, and you’re just on a different schedule,” says Jason van den Brand, Lenda’s co-founder and CEO. Most of these workers can’t exactly take a day off to apply for a loan.

What’s more, as complex as these platforms’ underlying technology may be, SoFi and Lenda both pride themselves on being easy to use.

“I’ll say it this way: If you’ve bought an airline ticket online, you can use Lenda to get a home loan,” van den Brand says.

For Wofsy, the San Francisco homeowner, using Lenda was a breeze compared with his earlier lenders.

“My previous experiences had made it seem like banks saw it as their job to find any reason to deny your application,” Wofsy says, adding that Lenda clearly laid out everything that was needed from him, leading to what he says was an “unbelievably smooth” refi.


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Creating better alternatives

“Like finance in general, the mortgage space is a highly regulated industry and it’s hard for a newcomer to do things differently,” Macklin says.

But that hasn’t deterred him or van den Brand. And it hasn’t stopped a handful of other start-ups from tackling a mortgage industry that both entrepreneurs say is in desperate need of a tune-up.

A staunch supporter of other mortgage start-ups like SoFi, Expedite, and OnDeck, van den Brand says that he’s a “big fan of anyone who’s pushing the envelope for consumer behavior and who’s letting them know that there’s a better and faster way of doing tasks like loans.

“All these different models are better than what exists today,” van den Brand says. And what traditional lenders offer now may not be the status quo for much longer, he says.

“We can’t for one second think that in 20 years from now we’re going to be lugging paperwork down to the corner bank to get a home loan,” he says. “That’s just not going to happen. And that’s actually not going to happen in the next three years.”

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Tony Armstrong is a staff writer covering personal finance for NerdWallet. Follow him on Twitter @tonystrongarm and on Google+.

Image via iStock.