Instead of waiting for credit standards for agency-backed mortgages to relax, two industry veterans are launching a startup to help credit-impaired borrowers rise to meet them. Jeff Walker and Steve Romano founded CredEvolv, a startup that facilitates credit counseling in order to transform borrowers that were declined credit into mortgage-ready leads for lenders.
Its cloud-based platform uses public data and proprietary analytics to help borrowers repair their credit. CredEvolv also seeks to help lenders ensure that they are not discriminating during the loan process, unwittingly or not.
Walker, former senior vice president of origination at Fannie Mae, will serve as the company’s CEO, and Romano, who was previously executive vice president of BBMC Mortgage, as its president.
As part of its launch, CredEvolv acquired Get Credit Healthy, a fintech platform Elizabeth Karwowski founded, which helped consumers raise credit scores to get approved for a mortgage.
In a statement, CredEvolv said it seeks to “combat inequity in the lending industry by providing a path for credit-challenged consumers, particularly those who are underserved, to realize their goal of homeownership.”
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In today’s housing market, lenders need to make sure they’re staying competitive. One way to do that is by offering a digital lending process’ that attracts borrowers across all generations, regardless of their credit score and finances.
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To accomplish that lofty goal, CredEvolv aims to help lenders meet fair housing compliance goals, give borrowers tools to repair their credit, and provide credit loan counselors with a stream of borrowers to pay for their services.
Walker said that credit loan counselors, which often have “very antiquated systems,” have been left out of advances such as digital income verification.
He added that credit counselors can sometimes be “distrustful of technology dehumanizing the high-touch they bring to the table.”
CredEvolv is looking to streamline the credit counseling process and provide loan counselors with a platform to scale up their operations, without removing the human element.
“The empathy counselors bring cannot be replaced,” said Walker.
Credit counselors may lack the commercial expertise to navigate changing trends in lending, Walker added. CredEvolv brings them a revenue source, although he hesitated to call CredEvolv a lead generator.
For lenders, the arrangement could be beneficial in the long-term. Borrowers seeking mortgages may be plentiful now. But fostering a steady stream of mortgage-ready borrowers with a high degree of loyalty could set them apart from other lenders when that changes.
And, in this arrangement, lenders also have little to lose. The consumer pays a $149 enrollment fee and $99 monthly fee to the nonprofit loan counselor. Separately, the nonprofit partner pays a platform licensing fee to CredEvolv. The licensing fees depend on the degree to which the counselor uses the platform, and CredEvolv declined to provide a range. CredEvolv said it is in the process of reevaluating its pricing model.
Once the credit counseling process is completed, which typically takes about six months, there is no guarantee that borrowers will go back to the referring lender.
But more often than not, they do, Romano said. That’s partly because it’s a complex process to navigate. Waiting for the borrower to complete the credit remediation process, especially if the lender stays in contact with the borrower, can help build trust.
CredEvolv also helps the lender stay in touch with the borrower during the credit counseling process. “The credibility, the trust and the effort along the way” help build a strong relationship, even if, Romano said, borrowers “may get a slightly better rate” with another lender.
“What we see is that the majority does go back to the original provider,” Romano said.
The startup also aims to help lenders make good on promises many of them made in the wake of the George Floyd protests, which brought renewed attention to racial inequality.
“Many lenders are making very vocal statements about their commitment,” said Walker. “We provide an in-market solution, so it’s not aspirational.”
But lenders may have a more pressing reason to extend credit to communities that have historically been denied access to it: Reenergized regulators including the Consumer Financial Protection Bureau are watching.
CredEvolv can help borrowers “who didn’t qualify to qualify, hopefully before the [CFPB] runs analytics and finds something they don’t like,” said Walker.
The CFPB uses Home Mortgage Disclosure Act data to determine whether lenders are failing to reach certain demographics, relative to peer institutions. Falling on the wrong side of that analysis, along with other factors, can lead to a determination that the lender engaged in redlining.
Editor’s note: A previous version of this article misstated CredEvolv’s pricing model.
