| Members of the mortgage lending industry shouldn’t be so complacent about Zillow’s foray into mortgages.
Zillow announced last week it was rebranding Mortgage Lenders of America, which it purchased in 2018, as Zillow Home Loans, and it would integrate it into its product line. According to a February earnings report, it hopes to originate up to 3,000 mortgages a year within the next three to five years.
Many Massachusetts loan originators are confident Zillow poses little threat to them. As several told Banker & Tradesman reporter Bram Berkowitz, Zillow’s track record generating leads for traditional mortgage lenders does not bode well for its ability to find quality borrowers.
These poor-quality leads could have influenced Zillow’s relatively modest 3,000-mortgage target, even if the company has decided to focus its lending efforts on a small handful of cities. In Massachusetts alone, lenders originated 140,344 purchase mortgages in 2018, according to data from The Warren Group, publisher of Banker & Tradesman .
This is less of a liability than it seems, however, as Zillow has the cash and technological wherewithal to efficiently sort the wheat from the chaff among its self-reported 157 million average monthly unique users to arrive at quality mortgage candidates.
For most consumers, Zestimates and similar products from Zillow’s competitors are easy-to-understand, easy-to-use ways to keep tabs on their property values. If Zillow can create a relatively frictionless, easy-to-understand online mortgage origination product, this familiarity at the very least gives it a foot in the door with consumers – especially digital natives – who might trust it more than a traditional loan originator recommended by their Realtor.
At best, this preexisting userbase gives Zillow an opportunity to steal a march on traditional originators, preapproving a prospective buyer even before they chose a real estate agent, or enticing someone enthusiastic about their home’s high Zestimate with a refinancing offer at just the right time.
Loan originators who believe traditional industry practices will continue to dominate forget that disruption is definitionally hard to see coming – just ask a taxi driver.
The rise of Quicken Loans, through its Rocket Mortgage all-digital mortgage product, offers a stark example.
Just five years ago, the company wasn’t even in the top 20 residential mortgage lenders in Massachusetts by number of loans, according to The Warren Group, originating a mere 640 purchase loans in 2014 for condominiums and single-family homes worth $185.5 million. The same year, market leader Guaranteed Rate originated 2,443 loans in the same categories worth $845.2 million.
By 2017, the year it launched Rocket Mortgage, Quicken had more than doubled its number of originations to 1,307, worth $401.5 million. The company originated 1,613 condo and single-family purchase loans worth $514.8 million in 2018 while Guaranteed Rate, still the market leader, originated 3,968 loans worth $1.63 billion. That year, Quicken was the 13th-biggest lender by number of loans for single-family purchase mortgages and the eighth-biggest for condominiums.
Will Zillow take over the world? No. But recent experience shows it doesn’t pay to underestimate a large, tech-savvy company intent on disruption.
