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LoanSnap, a fintech mortgage lender that started in 2018 promising to help consumers use their home equity to pay off high-interest loans, had its license revoked in Connecticut and was notified by California regulators that it intends to do the same.
The Costa Mesa, California-based lender — which has raised millions in business with money tied to celebrities such as Richard Branson, Joe Montana and LinkedIn founder Reid Hoffman — saw most of its business dry up last year.
LoanSnap was evicted from its headquarters in May and is facing lawsuits from creditors, according to Connecticut regulators who issued a cease-and-desist order in January and suspended the company’s state license in July.
LoanSnap, which did not respond to requests for comment from Inman, filed with the Connecticut Department of Banking on Oct. 2.
Connecticut regulators alleged that the company employed call center representatives who posed as unlicensed mortgage originators by taking loan applications, offering or negotiating loans, and denying other borrowers credit.
Although LoanSnap entered into the consent order “without admitting or denying any of the allegations,” the company also agreed that it would not make any public statement “denying, directly or indirectly, any of the allegations” or “creating the impression that [the] the consent order has no basis in fact.”
Riding the epidemic refi boom
After acquiring an existing lender, DLJ Financial, and launching in 2018, LoanSnap’s business took off slowly. The company originated 380 loans in 2019 totaling $131.7 million, according to the Consumer Financial Protection Bureau’s website.
But when mortgage rates plummeted during the recession, LoanSnap’s business took off. In 2020 and 2021, LoanSnap reported originating 2,164 loans totaling $822 million.
When it announced $10 million in funding in May 2020, LoanSnap said it developed “the world’s first smart loan technology that uses artificial intelligence to analyze people’s finances and show easy ways to benefit from smart loans.”
That round — co-led by True Ventures and MANTIS, the investment firm founded by EDM-pop duo The Chainsmokers — followed on the heels of a $30 million Series B, as well as earlier investments by Richard Branson’s Virgin Group and -Joe Montana’s Liquid 2 ventures.
LoanSnap has attracted high-profile investors
LoanSnap founder and CEO Karl Jacob, left, and founder and CTO Allan Carroll, right, pose with philanthropist Richard Branson. Source: Screenshot of LoanSnap website.
Offering cash-out financing and home equity lines of credit (HELOCs), LoanSnap encouraged consumers to consolidate their high-interest tax debt into a home equity loan for a lower rate.
“The interest rates on your credit cards, student loans or car loans are probably much higher than the interest rate on your mortgage,” LoanSnap continues to inform consumers on its website today. “Many people don’t realize that they can move their credit card or loan to their home equity and save thousands in interest payments. Some lenders focus only on interest because it’s easy to do, but their customers end up losing money by not seeing the full extent of their money.”
But as mortgage rates begin to rise in 2022, the refinance boom enjoyed by the mortgage industry as a whole began to dry up. LoanSnap originations that year fell to 567 loans totaling $210 million, according to the CFPB’s website.
Last year, LoanSnap originated only 42 loans totaling $3.59 million — an average balance of $85,476 per loan. The lender rejected 12 applications, and borrowers who submitted 68 applications worth $10.25 million withdrew.
Examination of the Connecticut Department of Banking
LoanSnap’s problems with Connecticut regulators – first reported by TechCrunch – date for an audit launched by the Consumer Credit Division of the Connecticut Department of Banking in July 2022.
In their first cease-and-desist letter to the company in January, Connecticut regulators said LoanSnap’s statewide business model relies on hiring salespeople to do work that, by law, can only be done by licensed mortgage loan originators.
That job included taking loan applications, collecting financial information such as bank statements, W-2s, tax returns and pay stubs, and advising prospective borrowers on their options.
Combing through records, including mortgage loan files and income records — and listening to recorded phone calls with consumers in Connecticut and other states — bank investigators concluded that unlicensed LoanSnap call center representatives made outbound calls to potential borrowers using leads from companies like LendingTree.
LoanSnap call center representatives will then make an initial decision about whether the borrower qualifies for the loan product and advise them on their options before sending them to a licensed home loan originator, Connecticut regulators said.
“The examination also found that if he does not have a license [salesperson] determine that the defendant does not have ‘beneficial options’ for the prospective borrower, so they will notify the prospective borrower and will hang up without allowing the prospective borrower an opportunity to speak with a licensed mortgage loan originator,” the regulators continued.
Instead, inspectors said, the so-called ineligible prospects were advised that a “senior manager of the mortgage bank” would “review the file and contact the prospective borrower if he or she determines there are ‘beneficial options,'” denying the prospective borrower. “
LoanSnap has reduced the need for hearings
Connecticut regulators said LoanSnap provided a written response on Aug. 18, 2023, “denies, for the most part” the inspector’s findings, which the regulators found “not.”
In a consent order dated May 15, 2024, LoanSnap agreed to pay a civil penalty of $75,000 and requested a formal hearing in hopes of keeping its license.
But LoanSnap dropped its demand for a Connecticut hearing and agreed to an Oct. 2.
According to that latest order, the Connecticut Banking Commissioner automatically suspended LoanSnap’s license on July 11, alleging that the company moved its headquarters to California without filing a change of address in the Nationwide Multistate Licensing System and Registry (NMLS) within 30 days.
LoanSmart’s landlord, MGR OC1 LLC, had sued the Orange County-based company in February, claiming it owed $537,304 in back rent, and had a sheriff evict it from the premises on May 16, Connecticut regulators said.
LoanSnap’s license is also subject to a temporary suspension because it failed to provide a bond rider or surety bond verification on file with the state, the consent order said. On July 24, Connecticut regulators said they received notice from LoanSnap’s bond issuer, Cincinnati Insurance Company, that the company’s bond will be canceled on Aug. 24.
Connecticut regulators also alleged that when it applied to renew its license in December, LoanSnap falsely claimed it had no outstanding judgments or liens against it. But on November 7, Wells Fargo won a $431,511 judgment against LoanSnap for breach of contract on the loans it sold to the bank.
The consent order also detailed legal actions by creditors including Optimal Blue, Mortgage Capital Trading, Anderson Tax LLC and South Street Securities, some of which preceded its license renewal application.
LoanSnap “fails to demonstrate that its financial responsibility, its character and its general fitness are such as to command public trust and to ensure that LoanSnap will operate honestly, fairly and efficiently,” Connecticut regulators said in summarizing their case for revocation. company license.
In discussions with Connecticut regulators, “LoanSnap sought to negotiate a surrender of its license to operate as a mortgage lender in Connecticut in lieu of revocation,” the consent order said. “LoanSnap has been advised that due to the outstanding condition and the extent of the aforementioned allegations, any surrender request will not be accepted.”
California regulators notified LoanSnap on Aug. 19 in their intention to revoke the mortgage company’s license in the province, citing the expiration of Aug. 4 of its surety bond.
Still open for business?
Calls to LoanSnap Friday were not returned, and the company did not respond to emailed requests for comment on Inman. Although the company’s website makes it appear that the company is still open for business, clicking the “Get Started” button on LoanSnap’s “SMART” loan application is misleading.
According to Connecticut regulators, LoanSnap was licensed to do mortgage business in nearly 40 states on Aug. 2023. NMLS records show that LoanSnap is currently licensed in 13 states, including California, and sponsors six mortgage loan originators.
In the FAQ website, LoanSnap says its services are available in 29 states – Alabama, Arkansas, Arizona, California, Colorado, Florida, Georgia, Iowa, Idaho, Illinois, Indiana, Kansas, Louisiana, Maryland, Michigan, Nebraska, New Hampshire, New Jersey, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Washington and Wisconsin.
“If you live outside of these states, we are growing very fast and hope to be available in your state soon!” the website says.
Connecticut regulators also said “LoanSnap advertised to consumers on its website that it was licensed in states in which it was not.”
In February, LoanSnap announced it had been accepted into Visa’s Fintech Fast Track program, which the credit card giant describes as “a program designed to help fintech and crypto companies bring new payment solutions to market.”
“This unprecedented achievement marks a milestone in the mortgage industry, placing LoanSnap at the forefront of fintech innovation,” LoanSnap said in a press release.
LoanSnap announced in April that it had joined NVIDIA Inception, a program the manufacturer said it created “to help startups grow faster with cutting-edge technology, opportunities to network with venture capitalists, and access to the latest technology services from NVIDIA.”
Visa and NVIDIA did not respond to Inman’s requests for comment on LoanSnap’s continued participation in the programs.
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