Fintech firm Scratch aims to replace traditional mortgage servicers

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A new financial technology company called Scratch is planning to use a new web-based platform along with an alternative pricing model to compete with companies that service mortgages and other consumer loans.

"Rather than trying to build a better loan servicer, we set out to replace the loan servicer altogether with a platform for debt that empowers borrowers and brings them closer to their lenders," said Sameh Elamawy, Scratch's CEO and co-founder, in a press release.

The company, which has raised $17 million from CFSI JPMorgan Chase and other investors, plans to offer alternative pricing that eliminates the traditional premium paid for the servicing of distressed loans. This is typically a more costly activity for servicers, but Scratch plans to use automation to reduce the expense.

The company plans to operate more efficiently than legacy servicers that use "overwhelming manual" processes, and are "reliant on massive, outsourced call centers," according to its press release.

Scratch's automation also aims to reduce costs through self-service tools for borrowers. It only charges consumers late fees if they can make their payments. The late fees are used to provide financial education and coaching to consumers.

"Business models based on borrower mistakes or misfortune are no longer sustainable," said Elamawy, who sits on the advisory board of the Consumer Financial Protection Bureau.

The company plans to charge lenders it works with either on a per-loan per-month basis, or based on a percentage of outstanding loans per month.

Student loan provider Meritize and cryptocurrency asset-backed lender BlockFi are working with Scratch.

Elamawy previously was a product manager for DropBox and Pinterest. Co-founder Chris Walters also previously worked at Pinterest, where he was a tech lead and engineering manager.

The other companies that have invested in Scratch are Index Ventures, Ribbit Capital, Founders Fund, and Nyca Partners.

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Digital mortgages Fintech Distressed Servicing systems Consumer lending Student loans CFPB