In 2007, Jason van den Brand was running his own mortgage brokerage in San Francisco. For a 27-year-old from Levittown, Pennsylvania, it was heady but pre­carious stuff: He oversaw 20 employees in a big office in Lower Haight, closing hundreds of millions of dollars of deals at the height of the real estate boom. Every day, van den Brand and his team cold-called hundreds of leads, and every day, he counseled borrowers frustrated by a never-ending list of required documents.

"I was a glorified telemarketer and a therapist guiding people through the American nightmare," he says, recalling the housing collapse. "The system was so broken that everything felt hopeless."

By the time it all went bust, van den Brand had sold that company, created a smaller successor he could run remotely, and started traveling around the world. Then he worked at a travel startup that sold to Living Social, and contemplated medical school. But the prospect of racking up $200,000 in student debt was pretty un­appealing--and van den Brand couldn't stop thinking about all those broken parts of the housing market. Eventually, he decided to try to fix them.

of mortgage loans made between 2011 and 2015 have defaulted
14 percent
of mortgages originated in 2006 and 2007 defaulted within 10 years
Average FICO score of first-time homebuyers
Average mortgage loan for first-time homebuyers
$25.8 trillion
Size of U.S. housing market, including household debt and equity
Sources: Urban Institute; Ginnie Mae

In 2013 in San Francisco, he launched Lenda to let people refinance a home loan entirely online, in a fraction of the time required by the traditional process. Last year, Lenda began originating mortgages online, and it now makes loans in 12 states. By using a digital process, van den Brand claims to have eliminated the telemarketing calls, high fees, and endless waiting that lead young would-be homebuyers to wonder whether renting for another year isn't so bad.

That makes Lenda one of several startups trying to streamline the labyrinthine mortgage market. The industry originated $1.1 trillion toward home purchases in 2017, according to the Mortgage Bankers Association, but remains achingly slow and paper-bound. While big banks are starting to roll out online applications and digital products, a traditional mortgage still takes 44 days on average to close, according to Ellie Mae, and can generate an eye-popping 1,000 pages of manually processed documentation.

In other words, buying a house requires wading through the equivalent of War and Peace--and feels nearly as brutal. It's a strangely analog process in this era, in one of the last industries to be so untouched by auto­mation. Meanwhile, tech-focused entrepreneurs have managed to upend almost every other part of our financial lives, from paying bills to sending money to creating digital currencies from scratch.

Yet the financial crisis made Americans learn the hard way that our home-buying process shouldn't be too, well...frictionless. So can digital lenders streamline the paper-choked mortgage process--without blowing up the housing market again?

After nixing med school, van den Brand needed new inspiration. The light-bulb moment came from a visit with his father, who had become a big Amazon shopper. "He had his credit card info saved. This from the guy who wrote out checks at the dining room table my entire life," van den Brand recalled. "It hit me that the world had changed." So he started a new mortgage brokerage from a Philadelphia co-working space. There, he met Elijah Murray, a user-experience designer who helped him create an online platform to automate the mortgage process.

Lenda joins startups including SoFi, Sindeo, and Better Mortgage, as well as tech-forward services from established players like Quicken Loans. Founder and chairman Dan Gilbert is turning Quicken into the nation's largest retail mortgage lender, one that's aiming at Wells Fargo's spot atop the whole industry. The company put itself at the center of the ease-versus-risk debate about online mortgages in 2016, when it ran a controversial Super Bowl ad for its new Rocket Mortgage service: "You could get a mortgage on your phone," the commercial promised, exhorting viewers to use Rocket's app to "Push button, get mortgage."

The spot's easy-breezy language reminded many people of the reckless lending attitude that caused the Great Recession. (It takes a little longer than advertised; Quicken executives say a refinancing can be done in as few as eight days, while a new mortgage can take 16.) But the commercial also expressed a frustration familiar to any legitimate borrower who has waded through the paperwork of getting a traditional mortgage: Surely, this could be easier.

Maybe someday it will be. Quicken Loans says that Rocket Mortgage and its digital application process are involved in most of its new mortgages, while banks, including Wells Fargo, JPMorgan Chase, and Bank of America, have recently introduced or announced plans for replacing some mortgage paperwork with tech tools.

This both proves the demand for what entrepreneurs like van den Brand have been working on for years, and potentially increases the competition. After all, few startups currently have the scale, financial backing, and expertise to navigate an industry that is highly regulated by both federal and state authorities--and that demands a headache-inducing amount of coordination with title companies, recorders' offices, appraisers, and the secondary-market investors who buy most mortgages from the original lenders.

To really compete, then, a startup needs: heaps of cash to operate as a lender; top-notch technology to make the online application seamless; and hefty infrastructure to handle regulatory requirements. As a result, even tech companies that build sites to let customers apply online are still largely at the mercy of traditional forces.

Without the money to fund mortgages themselves, some startups remain brokers and connect their customers with a variety of lenders. That doesn't guarantee success: Well-funded startup SoFi, for example, has been building up its mortgage operations for the past couple of years, but has spent recent months dealing with both unexpectedly high loss rates on its personal loans and the fallout from sexual harassment allegations that caused co-founder and CEO Mike Cagney to resign in September.

Meanwhile, many traditional mortgage lenders have yet to replace most paperwork with technology. That's why today, millions of otherwise-tech-savvy consumers are still transported back to 1997 when trying to buy a home.

Lenda got its big break in 2014, when it was accepted into Silicon Valley accelerator 500 Startups. There, van den Brand honed his pitch: Lenda would do for mort­gages what TurboTax did for taxes or Wealthfront did for retirement savings. By that October, the company had five employees, $1.5 million in seed funding, a website, and--after some early press--enough customer interest to crash that site.

But the next few years remained touch-and-go. In September 2016, even with tens of millions of dollars of loans under its belt, Lenda's bank account dwindled to four digits. Frantic, van den Brand persuaded an angel investor to make an emergency infusion. "The wire cutoff was noon, and it came at 11:58," he recalls. "We were literally watching a clock count down, like in the movies." When the money hit Lenda's bank account, he burst into tears.

What kept van den Brand going was deep-rooted anger at widespread industry inefficiencies--or worse. "It costs lenders $9,000 to make a mortgage loan," he says. "More than half is going to pay commissions to the loan officers and the people behind the scenes, and the rest is going to third-party vendors. The customer is paying for it."

Lenda funds the loans it makes, though it quickly sells them into the secondary market. By automating the process and cutting out broker middlemen, van den Brand says, he can cut the time it takes to get a loan by weeks, while also saving borrowers more than $2,200 in upfront fees on a $300,000 loan. (Lenda averages 30 days to close a mortgage, with the record being 13.) Although Lenda makes money by adding its costs into the interest rate, van den Brand says its lean operations mean it can still offer a rate that's a quarter percentage point better than traditional lenders. Over the 30-year life of a $500,000 loan, that can mean more than $40,000 in savings.

"One to 1.5 percent of your loan payment goes to the mortgage broker. That may have made sense in the 1970s, when the process required a lot of work, but today everything is streamlined," says Vishal Garg, the founder of Better Mortgage, a company that has funded more than $1.1 billion of loans in two years and received backing from Goldman Sachs and Kleiner Perkins.

Scaling remains a challenge even today. The startups won't disclose current volumes, but Lenda says it closed $60 million in loans between summer 2014 and November 2015; SoFi claimed in December 2016 that it was originating $100 million in mortgages per month. Quicken Loans seems like the clear leader, using Rocket to originate most of its $20 billion in mortgages in the first quarter--though that's still below the $43 billion in mortgages, including correspondent loans purchased from other companies, that Wells Fargo booked in the same period.

So, although the tech-savvy newcomers' share of the mortgage industry has grown, no single one has yet achieved the heft of the lenders that, in 2005 and 2006, helped flood the housing market with subprime loans. (By 2006, the notorious Countrywide Financial originated almost $470 billion in annual mortgages--or $39 billion of loans every month.)

"Just making something fast and easy doesn't mean it's any riskier, or that guidelines have changed," argues Rocket Mortgage product lead Regis Hadiaris.

Housing experts are watching the newcomers closely, but few are raising alarms. Rather than offering new, risky loan products, these startups are serving up the same mortgages in a more efficient way, says Ralph McLaughlin, the chief economist and founder of real estate consultancy Veritas Urbis Economics.

"I don't think there's much to fear, as long as they continue to stay roughly as prudent as traditional lenders," says McLaughlin, who got his mortgage through SoFi. "They're giving consumers a more modern choice."

Regulatory experts point out that today's lending environment bears little resemblance to the mid-2000s, when mortgage brokers approved loans without verifying buyers' income or assets. Federal rules now require lenders to ensure that any borrower has the means to repay a mortgage. Only 2.9 percent of mortgages were seriously delinquent or in foreclosure at the end of 2017--down from almost 10 percent seven years earlier, according to the Urban Institute.

"Just making something fast and easy doesn't mean it's any riskier, or that guidelines have changed," argues a Rocket Mortgage executive.

"It's unbelievable how good the quality of loans since the credit crisis has been," says Paul Noring, a Washington, D.C.-based managing director of Navigant Consulting's banking, insurance, and capital markets practice.

Still, speed and marketing bravado aren't the only things raising eyebrows among some housing experts. Some startups accept smaller down payments: SoFi in 2014 started making mortgages for as little as 10 percent down. The company says that it only lends to "safe," creditworthy borrowers with average FICO scores greater than 700--but as home prices in many markets increase faster than paychecks, buyers who plunk down just 10 percent have much less incentive to keep paying if something goes wrong.

"Down payments have a very high correlation to fore­closure," says Noring. "The more equity you have in your home, the more you're going to fight to keep it." 

Lenda still doesn't have enough capital to service its customers' loans itself. Instead, it sells them to secondary-market buyers, an arrangement that doesn't always help its reputation. "We had a customer in Oregon who was singing Lenda's praises, writing glowing reviews," van den Brand says. "But when her loan closed, I got a really angry email: 'You guys sold me out to someone who has one-star reviews. You sold me to the devil.' "

He hopes that by next year, Lenda will be big enough to service its own loans. In the meantime, van den Brand is celebrating bringing his company home to Philadelphia--where Lenda wasn't licensed until this year.

"You can't come into an industry that's as entrenched in American hearts and minds as home buying and change it overnight," he says. "It's going to be one hell of a war."