[Disclaimer: I generate no closing cost home loan leads for profit at tracecapital.com]
- You can’t give an accurate rate quote without knowing the correct LTV based on an accurate assessment of home value. Problem: Zillow or borrower is used for determining value, enough said.
- A mortgage marketplace quote is based off of the credit score given by the borrower. Need I say more? Compare this to the traditional lead model where credit is pulled once the borrower is contacted.
- Mortgage marketplace does not take into consideration late payments on mortgages, late payments on credit cards or unsecured debt, or other derogatory credit items. Repeat after me: “Yes Mrs. Smith, I did quote you 6% but the 30 day late mortgage payment changes that quote. Why yes, I am aware that there is a Lender Rating system on Zillow Mortgage Marketplace but really, I’m just trying to do my job based on the credit profile we are working with.”
- Is length of employment relevant to quoting accurate mortgage rates? Not to Zillow Mortgage Marketplace.
- Zillow has not answered the question of how it will police the inevitable low ball rate quotes that will become the norm and will flood the system. Unless they manually review each quote and due to lender competition, among other factors, the system is inherently biased to give rate quotes that are low. The question then becomes how many hundreds (thousands?) of reviewers is Zillow willing to employ to maintain quality control? My guess is very few. The premise seems to be that consumer reviews and oversite procedures by Zillow will maintain quality quotes. I will believe it when I see it. Nobody else has been able to crack this nut yet.
- Consumers will have the ability to anonymously review lenders. Let’s see here, anonymous posting on the internet, what could possibly go wrong? I’m sure Lender A will not anonymously trash Lender B and I’m sure that consumers will be fair when their rate is corrected with a lender because their credit score, LTV, length of employment, and or credit profile as given in mortgage marketplace were incorrect.
- The system can be gamed, pure and simple. According to the Zillow Lender Sign up Page, lenders can view the quotes given to a borrower by other lenders before giving their own quote. Um, okay, this won’t have any negative affect on rate quote accuracy…..
- At what point in time does Zillow correct the loss of revenue that is occurring with the “Any Lender Can Participate” model and kill two birds with one stone by moving to a model that utilizes a select group of large lenders that 1) Pay for the leads / revenue share 2) Inherently correct the burdening issue of inaccurate / low ball rate quotes given by random lenders by consolidating marketplace participation into group of said chosen lenders? Perhaps Zillow even decides to go into the loan business themselves, you know they’ve considered it or are considering.
- Anytime I hear “FREE LEADS”, I have to call BS. Unless the conversion rates and contact rates are so phenomenally low that quality lenders refuse to participate or Zillow experiences record breaking advertising revenues as a byproduct of the traffic mortgage marketplace brings to Zillow, these leads will not remain “free”. No smart company leaves money on the table and I think that if mortgage market place gains traction, the revenue opportunity will trump the revenue / page views generated by the free service. It is inevitable.
- Built In Fail: The central benefit to mortgage marketplace is that it gives the consumer the ability to choose lenders and control who contacts them as opposed to most websites that will give you rate quotes from four lenders and force you to deal with sometimes overly aggressive lenders that call you trying to vie for your business. Call me crazy, but when I’m shopping for something I WANT to be contacted regarding it. In light of the fact that mortgage market place quotes have an inherently strong bias to be under-quoted based on items #1 - 7, I would personally rather deal with aggressive lenders that will be using accurate data that they have obtained from me as opposed to getting quoted generated from the inherently flawed application that is used by mortgage marketplace and includes a built in propensity to give inaccurate / low rate quotes.
- What is better for the consumer: an inaccurate quote from mortgage marketplace where the consumer can choose how many inaccurate quotes to receive 2) a quote from four lenders that the consumer doesn’t get to choose whom they communicate with, but work off much more accurate information they have obtained directly from the consumer? Bingo, you’ve got it. Trading rate quote accuracy for privacy is a lose / lose scenario for lenders and consumers.
If the Zillow Mortgage Marketplace gains traction the model will change, guaranteed. They will not be able to justify the existing advertising only based model and allow any lender on the street to eat their lunch by swooping in to take “free leads” off of Zillow’s plate. If the Mortgage Marketplace model does not change, it is because there is very little value there, likely as a result or combination of low lender participation due to low borrower contact / follow through rates.
What is your point of diminishing returns in terms of how many rates quotes you are willing to carefully prepare for Zillow consumers without winning any new business before you realize you are better off purchasing leads or investing in marketing? Now compare that to how many rate quote requests all the new lenders, cheap or broke lenders, and unscrupulous lenders (your competition) are willing to submit and consider where their bias will be in terms of how accurate their quote is. Are you willing to compete with a lender that has outsourced their rate quoting to India? If they don’t lowball their rates too much, they will get past the quality filters and will simply submit large volumes or rate quotes. Perhaps other lenders do the same, at what point does a consumer get too many rate quotes and ultimately suffer? What are your chances of actually obtaining business when there is fierce competition and why would you participate if there is a very low conversion rate / chance for success. These questions have yet to be answered, but the point is still the same, if there is quality in the leads produced by Zillow Mortgage Market the model must and will change.
(via Todd Carpenter & TechCrunch)
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{ 18 comments… read them below or add one }
Don’t hold back Trace, tell us how you really feel.
While I am not directly affiliated with the mortgage industry, as a consumer and owner of a for sale by owner service, I have been following the many faces and directions of Zillow for quite some time - property listings, Make Me Move, Zestimates, etc.
So far what I have learned is that home sellers who rely on free Zestimates to determine their selling price tend to WAY overprice their homes. We live in the northeast US where it is very difficult to rely on cookie cutter data. Our homes may be historical, mixed use, rural, unique…you name it. The data that is used is often wrong to begin with as it is based on a tax assessor’s record. Square footage is often wrong, improvements may not be accurately shown, etc. Nothing replaces a face to face appraisal performed by an independent licensed residential appraiser. Yes it will cost about $300 in our area, but well worth the headache of lost time on the market or losing a buyer due to the inability to finance based on the value.
Now that Zillow is courting lenders it make me wonder whether we, as consumers, are headed down yet another rocky road filled with potholes and misconceptions regarding purchasing a mortgage based upon chasing interest rates rather than thoughtfully working with a lender to be in the right program from the beginning. Will we need to bale out all the Zillow oriented loans five years from now??
On a general note, it is very difficult for any website to provide the kind of specifics necessary for online quoting. Just ask the Div. of Insurance here in Massachusetts if you don’t believe me. They recently set up a website to help consumers review auto insurance options under our new competitive auto insurance regulations. It has been pretty much a disaster, with consumers feeling that there was a bait and switch going on — what they thought they would get and what the final quote ends up being when all the facts are in are often very different. The attorney general herself I believe said its one of the worst websites she’d seen.
Free lead websites are just another way to lure unsuspecting consumers into thinking that they can get something of value and not pay for it.
Wonder what they’ll try next…..
Good points, all of them. I think your general notion that this zillow system will only cause a spate of what I call “rate baiting” is wholly accurate.
I would like to point out that a lot of people actually do just want to see rates and NOT talk to anyone. I call them “rate voyeurs”. It should be an exciting time for them, as zillow will allow these rate voyeurs to see all the rates they want, whether real or not. Nice and confusing, but RATES RATES RATES. I have been told by some loan originators that they always quote below their own “par” rate, just to sound cheap and then put the customer on the elevator, either in rate or closing costs. (shock)
There is no perfect world in lead gen, but we try, too. Our rates are vetted for more accuracy by using real lender tools, and are anonymous which is more important, in that you get an unbiased rate quote with no markups.
Here is a typical scenario:
LO: Hello, xyz Mortgage, how can I help you?
Rate Voyeur: Hi, what are your rates today?
LO: I can give you the best rate in the country, let me see what the rates are today. (digs around and finds some rate sheet, sees his par at 5.75% on a 30 yr fixed) Ah, here you go…. I can get you as low as 5.25% on a 30 year fixed.
Rate Voyeur: Wow, that’s a great rate.
Appointment made.
LO: Hi Mr/Mrs Voyeur. Please come in. Here are the documents you must sign.
Mr/Mrs Voyeur: Wow, $6000 to close. WTF is with that?
LO: Well, most of that is what it costs to buy down the rate for you to the 5.25% that you liked.
Mr/Mrs Voyeur: But you didn’t tell us we would have to pay for that rate. What kind of BS is this? What is a buy down, anyway?
LO: I can do the closing costs for under $2000.
Mr/Mrs Voyeur: That’s more like it.
LO: But, your rate will be 6.25%
and so on. This is the type of thing that sours people on the process and taints the entire industry. You can see where this is going. There can be no dispute that the scenario has been played out, often.
What our system does is to level the playing field and eliminate that type of “rate baiting” practice by exposing the par rate, and then let the customer compare closing costs at that actual rate. They can always buy up or down, but you still have to start somewhere. We give them that place.
Chuck
I was too tired to post last night, but I wanted to respond.
Points 1-4 are no different than any borrower who calls you up on the phone. LO’s have been making quotes on rates without full appraisals, or credit scores, etc… for as long as I’ve been in the business. the key to marketing on this system will be to set the right expectations in your notes.
Points 5-7 are all valid concerns of mine as well. We shall see.
Points 8 & 9 well, I know a company that makes billions off of giving away stuff for free. IMO, Zillow’s business model is “Google for real estate”. I think it will work.
And for points 10 & 11, I seriously doubt that most of the consumers who have participated in a Lending Tree model would agree with you.
I don’t think Zillow’s model is going to wipe away the lending tree’s of the world, but their is a market for what they’re offering.
@Todd - Items 1 to 3 ARE different.
1) brokers speaking directly with a borrower can use different data source or get feedback directly from an appraiser (I did this often) whereas zillow is unable to because it uses only a zip code, YES only a zip code or user inputted data. Bad News.
2) Many times when a broker is giving a quote via phone the borrower feedback signals that because of credit issues, pulling credit as opposed to guessing a credit score is necessary to see is credit issues are actually reflected on credit report, how old they are, their effect on score etc. If a borrower is unwilling to pull credit, the broker may simply tell the borrower that without accurate credit data a quote is not possible. In either case the borrower is presented with factual knowledge about what they need to do to get an accurate rate quote , this does not happen at zillow and the consumer is misled with an inaccurate quote because of it. There are many scenarios where a rate quote cannot be given without pulling credit, in these scenarios giving a quote is simply inappropriate and misleading to consumers.
3) Save as above, clearly not the same as traditional model.
Regarding points 8 and 9: Zillow has taken $87 million in financing and has around 157 employees. Most VC’s are looking for a 3 to 5 year exit. Zillow is over two years old and not profitable yet as far as I understand. Whole industries are built on the generation / sale of mortgage leads, but Zillow, a company yet to achieve a profit, is going to use the revenue they could receive from mortgage leads as a loss leader to drive advertising revenue from the increased page views this service provides? Not gonna happen. The investors will not allow it, this will be a lot more true in coming years if they are still not profitable. I can’t find any data on when Zillow is expecting to be profitable but expect investors to be willing to cannibalize / change the business model at the drop of the hat in coming years in profitability is not achieved.
Regarding points 10 and 11, I agree that there are issues that need to be fixed by my argument is the same. Consumers are better served by ACCURATE rate quotes which sometimes come at the expense of being annoyed by multiple lenders calling you as opposed to receiving unreliable rate quotes they get to choose. Any benefits consumers get from controlling who they get rate quotes with will quickly be superseded with anger and frustration when they attempt to finance their home based on an inaccurate quote and are surprised with their real rate.
If controlling the number of lenders calling a borrower is such a big issue all players like lowermybills.com have to do is put one drop down box where the consumer dictates how many lenders receive the quote. The other issue that remains unresolved is when publishers / lead aggregators sell the lead more than once…. That is a very real problem. How long lenders are able to call a lead after it is generated is also an issue. Many companies use old leads to train new hires, this is bad for the consumer. On the other hand many sales people (if they are doing their job) follow up with their leads as well and as is to be expected. Some things never change and consumers being annoyed by sales calls is one of them. The traditional rate quote models (lmb style) have their flaws, to be sure, but I’m not only convinced that Zillow is not the solution but based on its current form, I’m convinced Zillow will actually do more harm than good to consumers. I think the existing model will prove to be misleading to consumers at best by exchanging rate quote accuracy for privacy. In the end, the goal is NOT achieved, the consumer does not get an accurate rate quote, the consumer loses.
If everyone has negative feedback, consumers will be hesitant to use Zillow. They will have to correct that, or they will be shooting themselves in the foot.
With all the negative attention they’ve received from inaccuracies regarding Zestimates and home information, they need to be real careful that this doesn’t mar them for good.
I personally think it will create a lot of work with small results, and that they won’t have the resources to manage the gaming or quality.
The idea of partnerships with quality lenders is a good idea, but this isn’t it in my opinion.
I don’t think I have ever come across an model in the mortgage world that is so ripe for dissection and contains so many fundamental points of failure. In my original post I even failed to mention some of the more basic and fundamental flaws in this transgression. I’ve never followed Zillow, but I’m morbidly fascinated at this point. I’m going to have to do a follow up post because the disservice that mortgage marketplace will do for consumers is epic. I can envision scenarios that involve regulators stepping in, this has the potential to go there, especially in the current environment.
In the comments at techcrunch.com ( http://www.techcrunch.com/2008/04/02/zillow-disrupts-lending-market-with-mortgage-marketplace/#comments ) Spencer Rascoff (CFO) asserts that lenders pay $50 to $100 for internet mortgage leads that are sold 4 times. Where do these guys get this stuff? I might know a few guys that pay $35, but most are at $10 to $25 depending on their volume…. In the boom people were paying $50 or $70 tops for a non-exclusive internet mortgage lead…. are they making this up as they go?
Trace, in the Business Week article that I was quoted in, Bile Rice notes that paling for leads at a rate up to $65 is is still typical. Bill was one of lenderama’s first contributors, and an expert on mortgage leads.
Todd - This is news to me. I cannot say that I know of a single company or person that pays $65 per lead, in fact I don’t know anybody paying $45. Do you? In any case would you not agree that Rice’s quote of $15 to $65 is still quite aways off from $50 to $100? Perhaps Rice will chime in here…. stiiiiil waiting….. um ok, not gonna happen.
I think it is germane to the conversation because some might consider it to be very telling of Zillow’s grasp of how mortgage lead generation works and worth noting in lieu of the argument I’ve put forth that there on the issues regarding mortgage marketplace. In any case, if there are people out there paying $65 per lead for non-exclusive internet mortgage leads, my sympathies go out to them, they have clearly been unable to figure out how to use the google yet. Perhaps Mike from leadcritic / zipsearch has some feedback, I think he’s at leadcon though…..
Congrats on the newsweek quote… that is very cool.
I hope Zillow understands very little about how paid leads work. Most lead providers are dirt bags.
There’s a thousand posts on lenderama, over three years. Not one of them is on who to buy leads from. What does that tell you?
You are preaching to the choir regarding the industry. The irony is that as bad as the lead generation industry is, Zillow has managed to build a model that will likely provide worse service and less accurate quotes to the end user and potentially expose consumers to even MORE bad apple lenders then the typical 4 lender traditional model.
I highly doubt that. But we shall see.
One thing I’m not clear on is what kind of check is done on lenders that sign up. The sign up form does has a place to list licenses but looks like it is optional. Does anybody know if there is any follow up or confirmation apart from paying $25 and giving your social security number?
No one pays those prices for leads, anywhere. They must make it up as they go, for whatever reason. Maybe they get that info from lead aggregators, the sewer of leads.
They are typically sold 4-5 times at about $20 a crack, if you total that MAYBE you can justify the comment.
Zillow said that the $25 is for a third party verification, but what that means, I don’t know. Perhaps they verify the license, perhaps they verify that the $25 check is good.
They (zillow) obviously have little background in this crazy field and have the attitude to “let the market sort it out”, which seems to prove my point that they don’t know what they are doing here. There are other models out there, that are very similar and I would not be surprised to see patent violation lawsuits down the road. I don’t think they cared to even look at process patents that are on record, and are just flying by the seat of their pants on this.
I wonder where the official blog responder, David G is? Maybe he is tired of responding to post and articles stating that Zillow’s mortgage marketplace will not work.
Or maybe he doesn’t see a need to respond to other lead vendors when he’s busy catering to the LO’s who know Zillow’s Marketplace will work.
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