Valon Burns the Boats & Rocket's Monster Quarter

A note to subscribers: Wowowow, Valon just lit a match 🔥 in servicing tech. The startup has formed a "strategic partnership" w/ top-5 Ginnie servicer Carrington Mortgage, which becomes a software client & also takes over Valon Mortgage's ~800K loan book. That's the headline, but the deal is so much more interesting than it looks on paper. The real scoop is below. Plus: Rocket's monster Q1 may be a tell for what's coming, & a mortgage coach merger worth watching.

This is a special edition —> another one drops tomorrow 👇️

Linda Du & Andrew Wang were just 26 when Valon's first pitch deck hit VCs' standing desks in '19. Neither had ever had a mortgage, much less serviced one.

The deck laid out a two-part vision: build a top-tier mortgage servicer from scratch, & at the same time, build a truly modern software platform underneath it. Eventually, Valon would shed the servicing & become a pure software play.

VCs were understandably skeptical of two 20-something Harvard grads talking MSRs & exception queues. Mortgage execs were even more so. Valon is a software company…but also a servicer? One CEO laughed them out of the room, called them "kids," told them mortgage servicing was too complicated, & said he'd see them in 30 years.

Backed by a16z & others, Du & Wang took on the GSE chicken-or-egg problem & grew Valon into one of the country's largest subservicers. So far, it’s primarily a founder-led sales effort & the pitch is their own operation. Last year, large subservicer ServiceMac signed up. Mega-servicer NewRez, which owns a minority stake, followed. (Freedom Mortgage is also a minority investor & some of its loans are subserviced at Valon Mortgage.)

"I believe this is the only way you can bring software to market in mortgage servicing," Du told me. "Because otherwise, nobody knows that your software is safe unless you do it yourself. Now we're at the next stage in our company — we are all-in as a software business."

The burning-the-boats moment, if you will.

The Carrington partnership should massively accelerate Valon on the Ginnie side, where loans are more complex & customer profiles diverge sharply from Fannie & Freddie's. Having a design partner that is also Ginnie's literal backup servicer should give Valon instant credibility & operational insight. If prospective clients were uncomfortable buying software from a company that also ran a competing subservicer, that conflict is now gone. (I don’t have details on the PE firm working w/ Carrington on the acquisition of Valon Mortgage, whose book worth about $197B UPB, sorry!)

I reported earlier this year that Valon is shaping up to be MSP's biggest threat. Much of Black Knight's core servicing tech was built in the '60s & has been forced to evolve to do things it was never designed to do. Some lenders are running hundreds of discrete systems & modules to service end to end. The technical debt is staggering.

Legacy systems also lack real workflow orchestration, which is brutal in an industry this regulated & investor-driven. Servicers wind up running on exception queues, which are manual, error-prone, & a recipe for things falling through the cracks.

I think IMBs w/ big Ginnie books will take notice of this partnership.

As for banks, well… historically speaking, big depository banks have been among the slowest to embrace new tech in mortgage, especially in servicing. That's been a moat for ICE/Black Knight. But the paradigm may be shifting. Many banks are fully on cloud now & starting to ask whether what worked the last 20 years will work the next 20. They have to take a hard look at their stack.

The revenue model is also worth chewing on. Valon prices on incentives, meaning they earn more when they create more value (improving efficiency, reducing default costs, etc.). Instead of paying $7 a loan on MSP, you might get a more modern stack for less.

None of this is to say Valon is there yet. They have a ton of work in front of them. And the incumbents aren't standing still. ICE will pour real money into AI over the coming years & can package MSP w/ Encompass as a full-stack play. But this is a big step forward IMO.

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Umm, is this a sign of things to come? If so, lord help other mortgage lenders. Rocket Companies reported its most profitable quarter in four years(!) despite a pretty mediocre mortgage market.

Rocket reported $2.94B in revenue, up from $1.1B a year ago. Adjusted net income came to $422M (up from $80M in Q1 '25) & Rocket generated more than $1B in servicing fee income in Q1, which is just ridiculous.

“Rocket is no longer the same company that it was three years ago,” CEO Varun Krishna said on the earnings call. “The shape of our business has not just changed; it has fundamentally evolved.”

Rocket closed nearly $45B in volume in Q1 w/ a gain-on-sale margin of 3.22%. But take notice of this: President/CFO Brian Brown said closed loan volume from its existing servicing portfolio hit an all-time high —> 54% of refi closings came from existing service clients.

I’ll have more on Rocket in tomorrow’s edition, so stay tuned.

Old-school coaching shops Mortgage Marketing Animals & Next Level Coaching have formed a “strategic partnership.” Next Level Coaching’s Jim Reed will serve as CEO & run day-to-day ops while MMA’s Carl White will move into a vision/strategy/content role. 

“This isn’t a takeover,” White said in a press release. “It’s a leveling up.” (It sounds to me like Next Level took over MMA, but I digress.)

Anyway, the announcement came just as Amir Syed, of newer school Go Coaching, kicked off GrowthCon in Chicago.

I think we’ll see some additional consolidation in the coaching space over the next year or two. Many of the mortgage coaches, like many chief executives at IMBs, are in their 60s & looking to retire. I’m curious to hear from industry pros — who’s a good coach that’s worth the money & who’s a hack? You can message me anonymously at [email protected].

See you tomorrow!

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