Anyone who has applied for a mortgage knows that it can be an arduous process that involves providing dozens of documents and filling out countless forms. After being approved, borrowers must then decide what type of loan they want.
The entire process takes an average of 45 days. But a new startup called Clara hopes to improve the experience and take a slice of the $2 trillion mortgage market.
Clara was founded by Jeff Foster, a former policy advisor at the U.S. Treasury Department starting in 2010. He helped form the administration’s response to the financial crisis, and specifically worked on housing policy and reforms of Fannie Mae and Freddie Mac.
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While he was at the Department of Treasury, Foster quickly realized that the experience of getting a mortgage was had a lot of inefficiencies. So two years ago, he left the government to team up with a former engineer at a hedge fund, co-founder Lukasz Strozek, to figure out how to make getting a home loan easier and and more transparent for consumers.
The result of that is Clara, a full-fledged mortgage lender that debuted earlier this year. The company has raised $27 million in funding led by venture capital firms Redpoint Ventures and Venrock. The startup is currently lending in California only, but it plans to soon expand to Colorado, Oregon, Washington, and Arizona. It expects to lend nationwide by the end of 2017.
What makes Clara different from other lenders? First, the company says that it educates borrowers about the types of loans available. “Education of borrowers has been completely ignored,” explained Foster. “People don’t realize what terms like fixed rate even mean.” Although Clara does provide a lot basic information around mortgages and the process, plenty of banks also educate their borrowers on mortgages.
Foster added that Clara isn’t just aimed at people who live in Silicon Valley. Rather, it hopes to serve the mainstream market, which is also served by many large banks, currently.
Second, Clara has created its own online platform that the startup claims is more efficient for borrowers. Borrowers can use Clara’s online portal to take information from documents like the original application and employment verification and fill out other forms with that same data. Clara also lets borrowers see the types of loans they qualify for and explains the details about each one. Clara declined to reveal exact rates but said its interest rates for mortgages “are competitive” and “generally lower than industry averages” for loans under $675,000.
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“We are using tech in more aggressive ways, so our costs are a lot less than traditional mortgage lenders,” Foster said. He also said that it is trying to reduce the time it takes to actually get approved. Clara says it can approve a loan in three weeks, around half the time of the industry average.
While the company is focusing on mortgages, Clara has ambitions of expanding into other types of loans, such as auto loans. The startup declined to reveal how much revenue it has made in the past year of issuing loans.
But Clara is going up against established banks who issue mortgages such as Wells Fargo and Bank of America. There’s also competition from other Silicon Valley upstarts, including SoFi, which offers mortgages and personal loans.
It’s worth noting that there is a chill taking place across the online lending business. Shares of Lending Club, which offers personal loans, and small business lender OnDeck, have plummeted in the public markets.
But Foster isn’t phased by the competition and still believes his startup can provide a valuable and differentiated service from others. “There’s so many inefficiencies in the mortgage process right now,” he said. “We want to digitize the relationship with the customer.”
