AI Mortgage Startup LoanSnap Loses Critical License in Connecticut After Failing to Comply with Regulators
One of the pioneering firms utilizing artificial intelligence to simplify home lending has hit a major snag after losing its license to operate in Connecticut. LoanSnap, which had raised millions from prominent backers to digitalize the mortgage process using automated underwriting, will no longer be able to serve customers in the Constitution State following an investigation by state regulators.
The Connecticut Department of Banking initiated a probe earlier this year that uncovered issues with LoanSnap failing to comply with a previous consent agreement as well as other violations of local laws. As a result, authorities revoked the company’s license through a new consent decree, restricting its ability to facilitate mortgages within the state’s borders.
Previously, LoanSnap had shown promise with its AI-first approach to streamlining the paperwork and qualifications necessary for a home loan. In its heyday, the startup reportedly brokered almost $500 million in mortgages for over 1,000 clients. However, challenges emerged as interest rates surged, drying up demand in the market. More recent federal data depicts LoanSnap’s volume dropping over 90% in the past year.
Adding to its woes, internal changes apparently caused LoanSnap to fall short of its commitments under a prior agreement made to regulators. This includes failures to properly register staffing changes and disclose pending legal matters stemming from their business struggles. While the full details remain confidential, it’s clear proper protocols were not followed.
With its ambitions stalled by this licensing ban, LoanSnap now faces an uphill battle to regain lost ground. The removal of access to a sizable northeast market like Connecticut represents a significant blow. It serves as a cautionary tale for startups in regulated domains to remain vigilant in satisfying all compliance requirements, even during tough economic times. How LoanSnap responds will determine if they can get back on the road to realizing their vision of the digital mortgage.
