Digital mortgage startup Tomo expands as competition pulls back

Lender focused on purchase-mortgages raises $40M at a $640M valuation

From left: Greg Schwartz and Carey Armstrong, co-founders of Tomo (Tomo, iStock/Illustration by Steven Dilakian for The Real Deal)
From left: Greg Schwartz and Carey Armstrong, co-founders of Tomo (Tomo, iStock/Illustration by Steven Dilakian for The Real Deal)

Digital mortgage lender Tomo is growing, even as rising interest ratings threaten to derail the runaway housing market and a beleaguered competitor pulls back.

Tomo, co-founded in 2020 by ex-Zillow executives Greg Schwartz and Carey Armstrong, raised $40 million in a Series A round and expanded into two new states, the company said this week.

The Stamford, Connecticut-based startup claims to have more than doubled its valuation to $640 million with the fundraise, which follows a massive, two-part $70 million seed round in late 2020 and brings its total equity funding to $110 million. A $312 million valuation attended the earlier funding round.

Tomo now operates in nearly a third of the U.S. After expanding into Michigan and Ohio, the company said it expects to cover half of the national market by year-end, as well as double its headcount to 300.

The company, which aims to cultivate an “ecommerce-like” experience for its customers, is hoisting its sails in a tempestuous mortgage market, whipped up by unprecedented demand, record home prices and rising interest rates, which have reduced demand for refinancings.

“It’s a rough neighborhood, with sharp elbows,” Schwartz said. “Ultimately, we’re focused on winning on speed, cost and experience.”

Earlier this month, competitor laid off roughly 3,000 employees, or about a third of its staff, citing a “dramatic” drop in mortgage origination volume — although the public relations fiasco surrounding CEO Vishal Garg’s missteps with earlier firings may also have played a role.

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Tomo and its investors are betting that by focusing on purchase-mortgages, guaranteeing on-time loan closings, and bypassing the “easy money” of refinancings — where both and Rocket Mortgage, its other main competitor, focus — it can grow the business and capture market share, Schwartz told The Real Deal.

It may only need to keep an even keel. The Mortgage Bankers Association expects purchase-mortgages volume to continue to grow despite rising rates — even as refinancing demand shrinks. The association recently forecast $1.77 trillion in purchase mortgage volume in 2022 and $1.85 trillion in 2023, up from $1.65 trillion in 2021.

Schwartz cited finding and retaining skilled labor as a challenge and priority. “It’s pretty rough hiring world-class technology, sales and marketing talent right now,” he said. “I spend half of my time hiring and coaching.”

SVB Capital led Tomo’s Series A, with participation from existing investors Ribbit Capital, NFX and Zigg Capital. Telesoft Partners and the proptech venture capital firm Parker89 joined as first-time investors.

With the new funds, the company plans to up its investments in “software development, data science and industry relations,” it said.