VC investments in mortgage AI show how rivals will cut labor costs

Recent capital raises at mortgage fintechs show which technology tools lenders value, and signal that measurable bottom-line results will drive future investor interest.

While the latest funding announcements from Kastle and Celligence show that the ease of using today's platforms for originations is a feature both consumers and mortgage professionals appreciate today, promise also lies in adjacent segments, technology experts say. No tool can spur interest unless they prove they can reduce costs, they add. 

"The costs to originate are just way too high for the kind of margins you can generate," said Dmitri Batsev, managing director at Imperial Fund Asset Management, who has long examined technology trends in the mortgage marketplace.

While tools' communication ability or speed to process may be the marketing angle that catches public attention, recent trends show that venture capital firms are emphasizing the types of tools that will significantly reduce labor costs, according to Jim Deitsch, co-founder and CEO of mortgage technology consultancy firm Teraverde. 

"We're the only industry that spends 65% of our costs to do business to create a product on labor. It's just unheard of, and that's where I think the promise of this will be," he said, citing Mortgage Bankers Association data on nonbank expenses. 

With aims to move "routineized function out of human capital and into the whole AI world," companies with technology that frees individuals to focus on edge and judgment cases in addressing consumers' most pressing issues are more likely to turn investors' heads, Deitsch said.

"There's so much money flowing into these in terms of angel VC," he said.

Kastle's newest Series A raise

San Francisco-based agentic AI platform Kastle announced a $24 million Series A funding round last week, the latest in a spate of positive news for the firm. Launched in 2024, the provider of voice- and chatbot-based AI conversational agents designed to serve alongside human employees at lenders and servicers compliantly, has earned accolades for its tools. 

Insight Partners led the round, with continued participation from existing Kastle investors Y Combinator, Commerce Ventures and Fifth Wall. The funding round included other founders and leaders within technology and financial services circles as new investors. 

"Kastle deploys AI agents that can navigate complexity, pass the bar on regulatory rigor and get high-stakes work done without waiting for a multiyear transformation," said Rebecca Liu-Doyle, managing director at Insight Partners, in a press release.

Initially introduced to assist mortgage servicers in their correspondence with borrowers, Kastle is now also focusing on consumer lending. The creation of hybrid-team environments that can rapidly scale companies through a combination of AI agents and human team members can produce much-needed savings in labor costs, executives say.

"We give financial institutions an AI workforce that can operate across the systems they already have, so they can capture the benefits of AI now — not five years from now," Kastle CEO Rishi Choudhary said.

The funding follows a deal from earlier this summer that will bring Kastle agents to New American Funding for use in both servicing and originations. Kastle previously reached a similar agreement with Carrington Mortgage Services to employ the same capabilities across its portfolio of loans. 

The news comes just days after the announcement of a $100 million investment into Celligence's AngelAi platform. Celligence is an affiliate of Sun West Mortgage.

Like Kastle's AI agents, AngelAi is geared toward assisting consumers and professionals in a conversational manner, guiding borrowers throughout a full mortgage transaction from application to servicing with its language models. 

In addition to scaling the platform and expanding access to mortgages for U.S. consumers, Celligence expects to use funding to grow internationally. The investment comes from real estate finance firm Mortgage Treasury. AngelAi's user base has grown to more than 400,000, Celligence said.   

"We anticipate tremendous cross-border opportunities," said Mortgage Treasury board member Tomoyuki Nakano in a press release.

Where investment dollars may be headed

Both Kastle and Celligence feature natural-language communication and processing capabilities, illustrating the appeal of tools that make communication simple.  

"Humans have the natural ability to express their thoughts in speech, and that I think is underpinning this conversational element of describing what needs to be accomplished — not necessarily how to do it  — in a system. That's where these two deals are working if you think about it," Deitsch said.

The mortgage processes holding promise for future investment activity, though, may be less concentrated on originations and underwriting but on AI-backed automation of essential adjacent activities, including appraisal, title insurance, post-closing tasks and loan trading, according to Batsev.

Quality control and third-party due diligence are also due for upgrades, he added.

"You pay $300, $400 a file, and it's like re-underwriting the loan, making sure it performs with the guidelines when the whole package is already ready. That is just ripe for technological advancements," he said.

What holds more value than simply having effective, flashy tools or all-in-one systems is proof that the technology can perform well and communicate across platforms, especially as much of the industry still relies on legacy systems. 

To that end, technology firms that apply a combination of large language models and agentic AI and prove themselves capable of accelerating workflows and improving accuracy are more likely to catch the eyes of investors.  

"People hitting it big are currently providing the functionality or essentially the raw capability to do the things that are being built on top of them," Deitsch said.