Tomo, a highly anticipated fintech startup founded by former Zillow executives and backed by $70 million in seed funding, has launched in three markets and is catering to homebuyers and agents by providing mortgage preapprovals in hours, guaranteeing on-time closings, and matching competing lenders’ rates.
Now open for business in Seattle, Dallas and Houston, Tomo’s backers say they’ll stand out from competitors by backing up the company’s proprietary end-to-end digital mortgage and home-purchasing platform with customer service teams dedicated to specific markets.
Too often, real estate agents feel like they’re program coordinators, and have to ride herd on all the parties involved in a transaction to take care of details that can derail closings, said Tomo cofounder and CEO Greg Schwartz.
“We just want to close on time, every single time,” Schwartz said. “That is a company mandate.”
If an appraisal doesn’t come in on time, or a borrower’s documents aren’t reviewed until the day before closing, Tomo will still come through with funding, he said.
“That’s on us — not on the Realtor, and not on the consumer,” Schwartz said of the company’s commitment to closing on time. If there are loose ends that might make it hard to sell a loan in the secondary market, “We’ll still close — we’ll just portfolio it [the loan]. We’ll put it on our balance sheet.”
Tomo also says it will provide fully-underwritten mortgage preapprovals in hours, and match the lowest rates offered by competing lenders in the markets it serves. The company says its technology platform — built mostly in house — will help it deliver on those promises.
“The key for us is underwrite first, underwrite early, underwrite accurately and reduce the labor costs associated with last-minute rushes, mistakes and errors,” Schwartz said. “We think many institutions lose 10 to 15 basis points on almost half their loans, because they’re doing last-minute rushes.”
Through a partnership with the real estate coaching company Tom Ferry, Tomo will refer homebuyers to real estate agents at other companies. Unrepresented homebuyers who prequalify with Tomo and choose to work with a partner agent will receive a 1/8 point reduction in their mortgage rate, Schwartz said.
“We’re going to go partner with the finest agents in the country — those investing in their careers, that know their communities, that have local orientation,” Schwartz said of the non-exclusive partnership with Tom Ferry. “If we’re going to send our customers who come in preapproved and unattached to an agent, we want those folks to be accountable to those customers, to us, to do great transactions, because it’s a two-way street. We need our partner agents to provide really innovative modern shopping experience. The Ferry community brings that.”
Asked how Tomo can be certain of delivering on such ambitious goals at launch, Schwartz pointed to an “all-star team” from the mortgage industry, as well as key hires from outside of the industry like Shane Proch-Wilson. Before signing on in January as Tomo’s senior vice president for mortgage, Proch-Wilson spent three years as Southwest Airlines’ senior director of strategy.
“We’ve got to deliver mortgages on time, and safely, without drama,” Schwartz said. “Southwest has got to deliver an airplane, right? Each and every time.”
It’s no accident that Tomo is launching in what Schwartz called “three of the hardest markets in the country” — Dallas, Houston and Seattle.
“We’re going into the belly of the real estate beast,” Schwartz said, in regards to the intense competition and difficult appraisals in these markets. “We’re going into those markets to scope ourselves for the most demanding situations out of the gate. And then we’ll be really careful about expansion, and not expand into any more markets until we’re ready.”
Schwartz and his Tomo cofounder, Carey Armstrong (the company’s chief revenue officer), are former Zillow executives, and other members of the tech team are also real estate industry veterans, he said.
“A number of us have participated in the real estate industry for over a decade, staring and watching and loving and getting frustrated by the things we’ve seen,” Schwartz said. “This is an opportunity for us to take that wonderful history we had and bring a different lens to it. The lens is we see buyers wanting a better real estate transaction that is less emotionally catastrophic than what is occurring right now — 15-offer situations, delayed appraisal processes, last minute conditions lists, delayed closings, loss of contracts. Realtors and their customers deserve better.”
Investors seem to have confidence in the business model and the team behind Tomo, providing $70 million in seed funding, led by Ribbit Capital, along with DST Global, NFX, SVB Capital and Zigg Capital.
After closing an initial $40 million funding round, “there was such interest, from some really terrific investors, that we welcomed additional investors, which helped us accelerate a little bit,” Schwartz said. “An extra $30 million in the bank helps.”
In its quest to win over homebuyers and real estate agents, Tomo will have plenty of competition. The iBuyer business model pioneered by companies like Zillow, Offerpad and Opendoor has expanded beyond targeting sellers who didn’t want to list their homes, and “proptech” now encompasses cash offer and trade-in services to buyers.
Schwartz said Tomo’s closing guarantee will give homebuyers an edge, and he’s skeptical that the demand for cash offer services is sustainable. For one thing, from the buyer’s perspective, “It’s pretty expensive,” with companies charging 1 to 4 percent for such services.
“These cash offers may turn out to be the Groupon of proptech,” Schwartz said. “It’s unclear to me. But if consumers want it, and listing agents value it, we’ll do it. It’s not that hard. But we’re chasing the more fundamental demand, which is to underwrite a mortgage faster, less expensively, in a much higher quality manner. And that is really hard.”
For similar reasons, Schwartz said Tomo won’t offer refinancing.
“We’re going to keep our eyes focused on the things we think will create sustainable value for us, our investors, our customers, and our partner agents, and being amazing at refi just isn’t among the top four or five things that we think we have to be world class at,” he said. “You’ve got to pick and choose who you’re going to be and what you’re going to be best at. We choose to be best at purchase mortgages.”