As the housing market fluctuates and attempts to grapple with low supply and rising rates, digital mortgage companies continue to make headlines for their successes, failures and overall strategy to bring streamlined, cost-effective services to consumers.
FinLedger had the opportunity to speak with Greg Schwartz, CEO of digital mortgage company Tomo, about the company’s services, plans for 2022 and overarching goals moving forward.
Q: First off, can you just describe Tomo and the services you offer?
A: Yeah, I’d be happy to. Tomo is a mortgage company doing purchase consumer direct, and we exist to deliver folks the mortgage that they want and deserve, which is faster, less expensive and has greater human connection and care. If we can do that, it’s an iconic company that makes people’s hearts fly.
One of the unique intentions is to be the partner of choice for the most productive real estate agents and teams in America. While Tomo is a technology company, we embrace the guidance and the connection that agents bring.
Q: When you build those relationships with agents, what does that relationship look like and what are the biggest friction points that you overcome when you make them?
A: Agents are pretty demanding, and they ought to be. They want to be communicated with on what we call “realtor time,” which is seven days a week whenever the customer needs. We’ve been communicating in the time and in the channel that they want someone to interact by. Text mostly, some by email and some by phone.
Agents are the frontline of customer expectations, so we’ve got to deliver constantly each and every time. You know the nature of mortgage; there are good days and there are bad days because we’re trying to work a file to make sure it’s credit worthy and likely to repay. The rule around here, and what agents want every time, is they want good news quick and bad news faster. So they have time to restructure things if and when there are difficulties.
We communicate quickly and consistently in the channel that they want, in the time and data they want. The other element is they’re now demanding a world-class technology that allows them to solve real problems. They’re demanding progress and appraisal. The great moan of every real estate agent, what do they worry about? They worry about appraisal, and then worry about winning listing appointments and winning with listing. That’s there before and we help them.
Q: Can you just talk a little more about how exactly Tomo helps these agents with appraisals and to help win listings?
A: The principles are about execution. Today, execution on time to pick up, we have an appraisal desk, and our SLA is one-hour pickups. So one hour from the authorized moment to move forward. We’ve got the place with appraisers so we start the clock fast, and with great care.
That’s the first. Two, we actually build our own appraisal panels. They’re independently managed of course, but we’re ensuring quality of output and we demand quality and speed. If we’re not seeing it we remove appraisers from panels, and that means a lot. We’re also trying to optimize to folks that know communities closely. We’re trying not to pay the low bidder and have folks drive 100 miles into a community that they’ve never seen before because the outcome is difficult. We try to be part of every GSE test possible, every technology driven test and every automated test possible. We get those things faster onto the platform, and we do a pretty good job. We’re turning appraisals as quickly as anybody in the business, and we’re spending to do it, so that’s pretty important to agents, as you can imagine.
Q: When it comes to cutting down time for pre-approvals, what would you say is the biggest factor and how do you manage to bring them down from days to hours?
A: That’s an interesting one. First of all, our pre-approvals are high quality. Pre-approvals are not pre-qualified masquerading as pre-approvals. We look for actual credit, income and assets. If a customer wants a fully underwritten pre-approval, when underwriters actually reviewed it, we do that for free. Our SLA on pre-approvals is within one hour of a customer submitting their data digitally with us. We could it in an hour to them and that’s our SLA.
We don’t demand customers get on the phone with us. We don’t hold pre-approvals hostage, which many folks do because it’s a conversion technique. We like to be free. We have a one-hour SLA on pre-approvals to the highest quality as [they] are being underwritten, and then we let them be free as soon as they’re available. That’s worked really well for us at Tomo.
Q: Can you talk about how Tomo handles customer data and the lifecycle of its use?
A: We know that the data we collect is pretty precious. It’s the precious property of our customers, not ours. It’s their life and their story. We don’t sell data, and we’re not looking to use it to underwrite other lines of business, not for selling cars. We’re not trying to sell furniture. We really want them to trust us to the degree that they’ll connect their data through APIs, like Plaid and Felicity and others, so that we’re making the load lighter on them. They have to trust us, and we use it for one specific purpose: that’s to underwrite a mortgage fast, less expensively and with fewer surprises.
Q: I was reading the press release on Tomo expanding to Florida, Connecticut and Colorado, and it talked about focusing on fixing the purchase mortgage experience and not worrying about the refinance market. Can you talk about the differences and the importance of focusing on purchase mortgages?
A: It’s a really important distinction that was unusual two or three quarters ago but, not so unusual today. There’s a few things here. We know that the ReFi (refinance) business is quite spiky, it comes and goes based on interest rates. In a staffing and underwriting organization, a processing organization and a sales organization, it ought to be much more stable if you care about your people, which we do deeply.
We want to be in a line of business that grows consistently and predictably. As we grow and mature over time, as we delight folks, we’re not at all interested in staffing to interest rates because the downstream impact on people is pretty significant. We’re really quite passionate about Tomo’s culture and about team orientation. I don’t see any way to build a robust, connected culture and a team that’s sustainable over a long period, when in a down cycle you’re going to let go of half your folks. From a team orientation, and as a company in the culture and equality. We never wanted to be in that business from a customer or partner orientation.
ReFi always wipes out your underwriting capability. It’s faster, it’s more profitable, it’s easier. You don’t have to coordinate with real estate agents. You don’t learn those skills. I’ve never seen anyone do ReFi and purchase in the same operating entity, with the consistency that realtors and consumers demand of us. We chose not to do it, because we knew there was going be a day and I think of ReFi as a tide. They come and go on a somewhat predictable basis. Not entirely, but they’re gonna come and they’re gonna go and you have no controller over it. That’s just not a high value business.
It’s a great place to make a lot of money for an individual practitioner or a private company, but you’re not building an iconic company that is changing housing off of that. So we don’t watch it. You know you see headlines today about who is letting go of people, and when your business is 80% ReFi, it’s a predictable outcome. I’ve got 0% of ReFi for Tomo as a result.
Q: Let’s cover your $70 million seed round last year. That’s a very large seed round. What are the biggest ways you’ve used that, and in what ways are you still using it moving forward?
A: You bet. We’re trying to drive some reasonably revolutionary progress. Faster, less expensive, with greater human connection, in quality of experience, in the right places. To do that we built our own point-of-sale (PoS) system. We’re building our own load operating system on iOS, which is a big, massive multi-year build. We started with a world class engineering and product design team and a white sheet of paper to build this all organically. That ultimately offers a huge amount of leverage to our company in our ears. If we’ve been able to align automation and labor, and the processors and underwriters are in our software platform, then we could be making hundreds of changes a year to our operating principles to drive speed, reduce cost and increase connection. You’ve got to own your software platform we think, and control your operating, people model together in concert. That’s not inexpensive.
The other unique thing we are trying to do at Tomo – we’re trying to purchase from a consumer direct model, from call centers eminently. It’s more efficient, and it lowers costs. You don’t have a branch network. The other thing is that it allows you to have very careful control about how you conduct your affairs and your process, but often it’s a locked connection with real estate agents and local customers. We’re trying to invent how to have the leverage of consumer direct in your own tech platform, with the connection of local experts.
Q: What other states are you looking at for this year and how has that been going?
A: Yeah, it’s a blast getting licensed, and then getting the whole team licensed there [laughs]. We want Tomo to be in two more states this month, and we’ll be at about half the country by the end of the year which is pretty quickly. Basically half the country within 16 months, so we’ll keep on grinding. You’ll see us focus on the East Coast, and then head on West.
One of the reasons we’re focusing on the East Coast to be direct, is that we really see one of the magic elements of what we’re trying to invent here is figuring out the right moment that our customers need advocacy and partnership from our team, from our people and with the efficiency and automation of technology. That’s the magic mix: humans and tech. It’s easier when you’re doing it in fewer time zones, because the expectations of time zone coverage are just tremendous. If it’s Sunday at 9 p.m. and I have a question, I want to call someone to talk to them, so we’re staffing that way. It’s easier to do on the East Coast with that mix of humans and tech.
Q: Can you talk about the jumbo loan product you unveiled and why that was necessary to introduce?
A: We want to do business where we live, and it holds us accountable. You’d better be good if you’re doing mortgages and real estate transactions. We’ve got offices in Connecticut, Stamford, Seattle and in Austin, Texas. To be relevant in Connecticut and Washington, we need a compelling jumbo product by the nature of home prices. We want to service everyone, so that’s why we’re going after jumbo. The product live, we’re adding investors everyday to that product and growing volume, so we have a very competitive jumbo product here. We already have a pretty good product and we’re going to get very competitive over the coming weeks with new partners in it. Next up is we’ll get FHA out here by the middle of the year. It’s going to be really exciting.
Q: Since expanding to those states, have there been any especially insightful things you’ve learned?
A: We’ve got really high turnover states. Texas and Florida are very high turnover, so it’s a lot of housing transactions. We’ve got good average price homes for $500,000, with about 30, 40 or 50 offers. In those instances having high quality paper, as my real estate agent friends like to say, is critical to getting on the top of the stack. We have to be well branded. Listing agents have to be confident that the lender is going to close on time. That is critically important to this company – making your contract close dates. We’ve only missed two, maybe three contract close dates in the history of the company. It is a huge deal at our company. Fault is irrelevant. Whether or not people got stuff on time is irrelevant, because we’re not in the business of disappointing our customers. I think we have a 98% or 99% close on-time rate in every single deal but three. We’ve had all hands on to actually do a post-mortem on why [those were closed late], and that’s how big a deal it is here. In the high volume, high turnover markets, that commitment to quality and closing on time has been incredibly important for communicating with real estate agents.
In our higher priced markets like Connecticut and Washington, with the turnover it’s a little less, and folks are quite sensitive to rate. Not everywhere, but on these big homes they want very competitive rates and they’re gonna take the time to do it.
Q: Obviously you look at this in a very big picture way. From the start, genesis-wise, what was the driving force behind building this product and company?
A: It’s pretty interesting. Tomo came about while I was getting on a train platform in Tokyo. I’m standing on a train platform, and I’m trying to figure out how to get on the famous bullet train. I am hopeless, it’s not going to happen.
The kindness I was shown by all the practitioners I met in Japan made me think of the very best real estate agents and loan officers back in the States, people that do things for others. Not just because it’s what they get paid to do, but because it’s what they have pride in. I think the world’s best realtors and loan officers have great pride in helping people get a home. I was standing on a train platform, thinking about how frustrated I was at the experience I’ve recently gone through in buying a home. I know I see in consumer research every day, people talking about having a second job when they’re getting a mortgage. They talk about buyer syndrome or “buyer head,” and what they’re talking about is the stress that comes with the unknown.
There’s so many things that keep getting conditions tripped on me. They’re never bundled, and it seems like an everlasting process. I’m so worried about losing my earnest money or losing the house in this competitive market. I’ve let go on my financing contingency, which is very, very common nowadays. Standing on the train platform and reflecting on these wonderful experiences in Japan, where people took pride to guide us, made me, believe it or not, think about housing and wanting a better way. In the catastrophe of the housing transaction is the mortgage, and it’s really hard.
The Japanese service philosophy of Omotenashi, this famous 100-year old service philosophy about anticipating your customer needs and meeting them without being asked. It’s a beautiful thing. The first four letters of Tomo is Omotenashi backwards, so that’s our jobs. We’re experts in housing finance, experts in the real estate transaction and our job is to anticipate our customers needs, meet them and guide them with really great technology and great people. Also great partnerships with independent agents, that’s the last piece. We will never hire a real estate agent here, because we’re not real estate agents in a classic sense. We partner with real estate agents who are the best in their local communities.
Q: Over the years, there has been talk about replacing real estate agents with technology, but obviously that hasn’t happened. Can you just talk about the importance of agents nowadays and how the overall preconceptions of them has changed?
A: So many smart people have raised lots of venture dollars, and think that they’re going to automate the real estate transaction and do away with the humans in both mortgage and real estate. We’ve never subscribed to that. We really believe that technology will amplify people, because we’re nervous. If we do this infrequently, every seven years, and the risk is high. If we make a mistake, we want a person. Do we want the person to communicate more effectively? Yes, and we want the prices and costs to come down. We want a modern data experience. We’re not using a phone to photograph documents that I just printed out, when I can just connect my accounts.
Of course folks will get that, but computers are pretty bad at making us feel safe. Humans are pretty good at that. Computers are really good at doing repetitive, data-intensive tasks that people find unpleasant. Mix those together, and we’ve got something really, really beautiful. I’ve spent the last 15 to 20 years of my life on proptech and real estate technology at Zillow and now Tomo, and I’d never dream of buying a home without a realtor. There’s just no advantage to it. The big interesting thing is the corporate agent. There’s a thrust to hiring agents at mortgage companies, and that’s going to be a really interesting thing to watch and maybe someone will be successful. Our insight is that we want to work with the most productive agents, and in our communities, they are typically independent agents.
Q: Looking at 2022, what are your big goals for Tomo and the things that you want to hit this year?
A: We want to get quasi-national footprint. We want to broaden our products. We have a big, massive build out on our proprietary technology platform, that will enable our folks to do loans faster, less expensively and with credit quality. That’s what we talk about every day at Tomo.