This Startup Wanted to Revolutionize Mortgages With AI. Now, It’s Facing a Barrage of Lawsuits

LoanSnap, whose investors include Richard Branson, raised over $100 million to launch AI-boosted mortgage products. Now, it faces an uncertain future.

LoanSnap's founders Karl Jacob and Allan Carroll
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LoanSnap is a fintech startup that applies AI to mortgage lending. It has raised more than $100 million from investors, including Transmedia Capital, Ovo Fund, and Virgin. In fact, the company proudly points out on its website that Virgin founder and billionaire Richard Branson had kind words for the startup.

However, TechCrunch has revealed that authorities evicted it from its California headquarters, and its employees fear for the company’s future. The situation raises questions about investor diligence and the soundness of LoanSnap's business model.

Why it matters. LoanSnap’s rise and fall remind us of the risks of investing in AI startups, which are popular today for their explosive growth but can have fragile foundations.

Despite millions in investment and the fame of its founders Karl Jacob and Allan Carroll (pictured above), the company has accumulated lawsuits, fines, and questionable practices. This is a warning about how the bubbling AI ecosystem works.

The product. LoanSnap offers several AI-powered financial services with a focus on mortgages:

  • Mortgage lending.
  • Refinancing, both to reduce the payment by extending the term and to get cash tied to property ownership
  • Home equity lines of credit (HELOC), which work like a credit card using the house’s value as collateral.
  • Smart loans that use AI to analyze the customer’s financial situation.

The numbers.

  • 100 million dollars raised since 2017, 90 million in the last three years, with renowned investors such as LinkedIn co-fiunder Reid Hoffman and Branson.
  • 1,300 loans generated for $500 million in 2021 (its record).
  • Only 122 loans in 2023.
  • An amassing of state fines (such as $75,000 from Connecticut) and national fines (such as $25,000 from the Federal Housing Administration).
  • At least seven creditors have sued for more than $2 million.
  • An accumulated debt of $12 million.

Internal problems. According to TechCrunch, LoanSnap has had three CFOs since December 2022. That same year, one of its members of its board resigned.

The company incurred several payroll defaults between December 2023 and January of this year. It has also cut its workforce by more than half, from over 100 employees to less than 50. In May, authorities evicted it from its headquarters in Costa Mesa, a city south of Los Angeles, for failing to pay $405,000 in rent.

There’s also a record of extravagant spending on parties and gifts during its good times despite underlying problems.

Regulatory concerns. LoanSnap customers have complained to regulators, including the Better Business Bureau and the Consumer Financial Protection Bureau, about abusive fees and improper loan closings. California regulators are investigating the company for misconduct. Meanwhile, in Connecticut, state authorities claim that LoanSnap may have employed unlicensed personnel and violated mortgage regulations.

Between the lines. Employees have criticized the “terrible leadership” and “wasteful spending” of the company’s management. Investors, meanwhile, ignored it all because of the CEO’s charisma.

In July 2023, with several open lawsuits already in place, LoanSnap raised another $19 million. Despite its problems, it has continued to receive awards and enter accelerator programs from big-name companies like Visa and NVIDIA. These two companies reflect LoanSnap’s great aspirations: finance and AI.

The future. The remaining company employees feel “stuck” and are unsure if the enterprise will be able to resurface. There’s no communication or accountability, the founders are silent, and investors are reluctant to comment. The situation has prompted skepticism about LoanSnap’s future and is a wake-up call over the irrational exuberance around AI in California and the world.

Image | LoanSnap, Xataka

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