Blown Mortgage

Zillow announced a while back that they are launching a new mortgage service for the users of their site. They must be getting close, because they are currently recruiting for an industry relations director for their new mortgage opportunity. Todd Carpenter over at Lenderama started a discussion about what possibilities this new venture holds for Zillow and the mortgage industry. He opened up his blog for feedback and discussion and says that he has some ideas of his own that he’s holding on to for the time being as the conversation develops. The crux of the question is how does Zillow do mortgage?

To further expand the conversation here is my take on Zillow’s move in to mortgage and some thoughts on what they could do to make a difference in mortgage lending.

What’s Wrong Right Now with Mortgage Shopping Online

1. Misinformation
2. No filter
3. Bait-and-Switch
4. Lack of Transparency

1. Misinformation. The primary problem with existing web-based lead generation is it’s based on luring consumers in with the best possible offer. This has unfortunately taken the shape of ads focused on how much money you can get for the least amount of monthly outlay. Those of us in the industry know that those ads are primarily based around the quoting of a negative amortization payment on an Option ARM; perhaps the most deadly of any type of home financing.

This misinformation does a couple of things. 1. It predisposes consumers to look for the “best” deal and equate “best” with “lowest monthly payment.” Unfortunately this also predisposes them to equate “best” with “most risky” in terms of loan financing. 2. It predisposes consumers to shop by looking at “lowest” everything, from rate, to monthly payment to fees; which we shall see, primarily predisposes them to choose lenders who lack scruples in their upfront mortgage pitches.

2. No Filter. Anyone with a buck to spend can get in to the lead game. Lead generators have no boundaries, and lead buyers only need to pony up the cash to buy leads. There is no filter. You don’t know where your information is going to, how many people it is going to and/or what the qualifications of those people are. Further you have little redress should anything go awry. Most lead providers are several steps down the chain; and lead-sale fraud is so rampant amongst smaller lead providers that you never really know where your information is going after filling out that web form.

3. Bait and Switch. The primary complaint with companies like BankRate.com who currently post interest rates from various companies is that consumer behavior dictates that lenders need to lie and be overly-aggressive on interest rate quotes to generate any return on their traffic. They pay monthly for the pleasure of being in the reddest ocean in the world; and to get a return on that investment they need to essentially over-promise so that you click through to their site. Once on the phone with them a loan professional will quickly advise you that you “don’t qualify” for that particular program.

This need for return on monthly subscription fees in the face of massive competition fuels that bait and switch which results in a miserable and confusing financing process.

4. Lack of Transparency. As I mentioned in #2 there is no transparency, no audit trail if you will, once you become a lead passed through the system. You’re gone and on your own in the wilderness with no fallback (except maybe to start all over and choose another rabbit hole). This lack of transparency about who the lenders are, where your information is going, and what is going to happen next are some of the big culprits in why online mortgage shopping is currently a crap shoot.

So we know what sucks with online mortgage do date. Let’s look at what Zillow currently does well; that will let us get some good ideas about how they might solve the problem of shopping online for a mortgage.

What Zillow does well

1. Consumer advocacy
2. Data Masters
3. Conversations
4. Unique Metrics

1. Consumer advocacy. Zillow is a firm believer in the mantra “a well informed consumer is a better consumer.” They’ve demonstrated this through the wealth of information available to consumers for the first time ever in an easy-to-understand format. They’ve added to that with a robust Real Estate Guide and a the new Zillow Discussions. This approach to consumer advocacy is evident in the very intentional way that information is presented and currated by the folks up in Seattle.

2. Data Masters. No matter what industry people say about the accuracy of the Zestimate the American homeowner ain’t listening. People love the Zestimate. For all its flaws, which it has no doubt, the Zestimate is the true disintermediation of real estate information. Never before could you get information about your home, your neighborhood and your region like you can today. This is a major breakthrough and one that the web-guys at Zillow get.

Unlocking the data, making it easy to understand and present it in a way that makes sense is what makes a good information distributor. Zillow is doing that and improving continually.

3. Conversations. Zillow has shown its commitment to social media through their staff interactions and marketing strategy towards the RE.net. They understand the power of convesations and fully embrace the influencer communication model. By communicating directly with influencers they are able to leverage a trusted 3rd party to disseminate their news with out having to shout it themselves. This strategy is cultivated even further by bringing influencers directly to their target audience in a virtual meeting place between sellers, buyers and professionals. The conversations held between these groups will continue to grow in meaning as the professionals realize that shouting from their stand in the bazaar is less effective than actually having a conversation with an engaged lead.

4. Unique Metrics. Zillow just recently added behavioral advertising capability to its web site. If you don’t think this is a big deal, think again. This is an incredibly important advance for Zillow; and another reason why “Web guys” have a shot at building a successful real estate and mortgage portal online. Behavorial metrics is the key ingredient for Yahoo! and other large properties in attracting the massive amounts of ad revenue that they do for various big brand advertisers. And we’re not talking just basic demographics here folks; on the back end of these systems is some of the most complex, insightful data you’ll ever see as it relates to B2C marketing.

These unique metrics will give Zillow an unquestionable advantage over the other lead gen properties.

What Works When Shopping for a Mortgage

So what does work when shopping for a mortgage? What might Zillow try to co-op or improve upon to own the mortgage lead-gen process? Here are a few things that tend to make for a successful mortgage transaction.

1. Expert advice
2. Relationship driven business
3. Offer Angel - understandable transparency
4. Upfront mortgage brokers?

1. Expert advice. The long (long, not lone) argument against online mortgage shopping is that you have no idea who you are dealing with. You could be talking to a mortgage broker of 15 years or an ex-con who just got done serving 15 years. This lack of expert advice and trust (Jillayne might say fiduciary relationship) is what a personal referral brings (usually) to the table in a mortgage transaction.

Having this expert (fiduciary-esque) advice is key to a successful transaction.

2. Relationships. It’s funny (or not) how little the mortgage industry has evolved on the origination end. (It also represents the great opportunity for Zillow.) The best way right now to get a mortgage is to get a referral from a trusted source; and then vett the referred significantly until you are comfortable with that service provider.

Take that relationship, plus some awareness and due diligence and you are in pretty good shape. Relationships are still key in this business - no matter what anyone tells you.

3. Understandable Transparency. Brokers complain to me all the time that consumers don’t care about honesty because they only look at rate and closing costs and don’t consider the big picture. I think that the complaines are half-right. The problem is not that consumers don’t care about the honesty; it’s that they don’t have an easy way of understanding or comparing offers (honest and not). The disclosure system has become such a complete mess that people’s eyes blur over before they get to line 3 of the first page (of 50). A system of understandable transparency; like OfferAngel.com where offers can be compared on their most basic levels in an easy-to-understand format make for better buying decisions.

4. Upfront mortgage brokers? I use a question mark because while I am not sold on the business model, I appreciate the idea. The idea that a fixed cost for the service is negotiated up front and all costs and fees are in plain view. This service is often decimated by a good bait-and-switch hack by over-promising and clinging on to dear life at the end of the transaction; however, this idea of upfront disclosure and a fair, negotiated price has some merit. Even if the implementation of such a model has proven less than perfect to date.

What is the Secret Mix?

So what is the secret mix that Zillow can use for its online mortgage platform to really revolutionize the way that mortgages are shopped for online?

There are some hints in the above which I think point to strategic areas where Zillow can leverage its strenghts to solve some of the weaknesses in the current system.

1. Transparency
2. Social media - wisdom of crowds
3. A twist on Zestimate
4. A true marketplace
5. Metric Mania

1. Transparency. If Zillow can “turn on the lights” in the lead gen process and give consumers a full view of the lead gen chain from who is getting their information and how it will be used; while giving them control over that process they will have taken a huge step forward in lead generation. This could, in one swipe, take care of a huge portion of what ills online mortgage shopping today. By giving consumers control over the process and clear visibility in to how it works they will build consumer confidence and become a consumer choice over the black holes that are LendingTree.com and others.

2. Wisdom of the Crowd. Zillow is building its community to a critical mass. While they continually work to pull traffic to the site in to a lasting relationship via discussions and other features they will add to a growing regular user base that will be able to act as judge and jury for those that abuse the Zillow property. By using social media to leverage the wisdom of their informed and passionate crowd Zillow can weed out unscrupulous mortgage originators and help maintain a high service level for all transactions that happen as a result of lead-gen at Zillow. The crowds will be able to control the destiny of mortgage originators.

Think ebay and seller and buyer ratings. Think Prosper and how their site is structured. Those two sites give you insight on how an offering could be built to protect the integrity of the service level by a high degree of transparency and feedback within the Zillow space.

3. A twist on Zestimate. Why can’t there be Zestimated mortgage rates and terms? Why do they have to be generated like BankRate.com? The answer: there can, and they don’t. Zillow can leverage some of the technology that lets them regionalize home prices to regionalize mortgage rates and service costs. Instead of letting brokers and banks put their own numbers up they can leverage regional data and various information sources to come up with their own Zestimated mortgage rate by region and more.

The beauty of this is that it doesn’t have the implications of a poorly Zestimated home value; because it will only act as a baseline to make for better informed shoppers. If you as a consumer have a better understanding of what is going on around you on a regional level you can have taken care of a large part of due diligence in finding the best rate (only one component of course) while not being a victim to the bait-and-switch environment that is bankrate.com.

4. A true marketplace. By combining their already keen ability to deliver complex data in an easy-to-understand format with understandable transparency (a la OfferAngel) they have the ability to create a true open and honest market place for consumers to shop for a mortgage. By “turning on all the lights” and making mortgage choices easier for consumers they can position themselves as a much stronger resource than other lead-gen companies which promise the unattainable in exchange for your information.

Imagine a place where you could clearly see your options in a way that makes sense, against the backdrop of a relevant market picture, with the help of the wisdom of the crowds. This could be a powerful space.

5. Metric Mania. Zillow will leverage behavioral targeting to improve the mortgage lead-gen process (which it surely won’t be referred to by Zillow folks) so that the latest in consumer metrics and measurement will be used to target mortgage-related marketing dollars and refine the overall user experience in the new mortgage space. This reliance on metrics will allow Zillow to go leaps and bounds over the companies that only use it to focus on lead capture; rather than overall process and experience improvement.

Conclusion

Zillow has a shot, and a good one at that, of revolutionizing the way that consumers shop for a mortgage online. It won’t be an easy task; and balancing the legal requirements of not being a mortgage company with the need to provide a safe, consumer-friendly marketplace will be interesting, but they do have the tools and the ability to change the way things are done.

Will it be done all at once? Doubtful. Will there be bumps in the road? Absolutely. Will some ideas fail? Surely. But if Zillow

combines its consumer advocacy and information pledge with process transparency and easy to understand information presentation it will have a distinct opportunity to set itself apart from the major competitors in the space. This will surely be a win for both consumers and mortgage professionals tired of the rabbit holes, bait and switch schemes and endless unfulfilled promises.

As a fan of consumer advocacy in mortgage myself - I hope they do it.

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