Archive for the 'Mortgage News' Category
Zillow Mortgage Marketplace, Cultivating a Better Crop
May 21st, 2008 Categories: Mortgage News, Tranparent mortgage pricing, zillow
Since launching last month, Zillow’s Mortgage Marketplace has grown quite respectably. They’re already adding features as a result of listening to members of their community.
According to Nate Moch from the Zillow Blog:
Since launching Zillow Mortgage Marketplace a little over a month ago, we’ve received all sorts of recommendations and feedback from our users. We have been busy fixing a few things since then, but we’ve also recently added features the our lender community has asked for. We appreciate the great suggestions we’ve received and hope the new offerings we added will be useful tools for the 2,000+ lenders in the marketplace.
The improvements: a Quote Pre-fill, Loan Quote Flags, and Lender Leaderboard attempt to address some of the inefficiencies within the community, specifically the latency and accuracy of information from participating lenders and consumers.
Quote Pre-fill reduces redundant data entry for the mortgage professional making the act of filling multiple, similar consumer quote requests more efficient.
Loan Quote Flags allows the professional community to police itself from traditional mortgage gamesmanship by reporting obvious grievous actions.
Lender Leaderboard ranks professionals by the number and quality of reviews they’ve received.
The big Z has also begun to offer some nice intuitive calculators…
All in all, a positive direction for the community, though probably still not enough to increase the viability of the Marketplace to a point of an acceptable client pull through rate ratio, for the upper end professionals.
Zillow still has to markedly improve on a couple areas before they become a viable community for anonymous, transparent lending a.k.a. Mortgage 2.0:
Decreasing and normalizing the latency in information exchange between the consumer and professional. ‘Vanilla quotes’ come back within an hour, but quote requests that deviate from the conforming norm take substantially longer or go unaddressed. Both time frames are far from ideal.
‘Accurately and efficiently quoting a myriad a loan scenarios’ is an oxymoron. With the market changing daily as far as product availability, a professional who’s not diligent in their research may misquote unintentionally and get flagged even though they were genuine in their actions.
Zillow is still completely beholden to their professional community to provide the most critical information, rate and price, in a truly transparent fashion.
IMHO the big Z is addressing this dynamic one step too late in the infochain-link:
Wholesale Market-Professional-Zillow-Consumer
Ideally:
Wholesale Market-Zillow-Professional-Consumer
would be far more effective, alas far more difficult to pull off…
Today Zillow is still closer to Bankrate 2.0 than Mortgage 2.0 (I’m throwing 2.0’s around here) but they’re trying hard and getting better, taking continued important steps to ultimately getting it right…
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What’s My Mortgage Rate And How Much Is It Going To Cost Me?
May 15th, 2008 Categories: Mortgage News
Mortgage professionals would like to believe there is more to sales than answering the: ‘What’s MY rate and how much is this going to cost ME?‘ question, but there really isn’t.
It’s become an industry of risk based pricing and articulate paper pushing, whoever can push the paper in the right direction the fastest, for the least cost, wins. Sure they’re are people who’ll appreciate the full service model, much like the real estate sales industry equivalent, but this demographic is shrinking and far faster.
Allow me to tell a story…
My former company, a mortgage brokerage, engaged in a gelatinous mix of marketing campaigns with value apropos via: Direct mail, cold calls, blast faxing (while it was legal), ‘press one’ predictive dialing, targeted lists, internet leads, database marketing, yellow page ads, weekly newspaper runs, networking at every Chamber of Commerce event within driving distance, pounding the pavement visiting real estate professionals, you name it we tried it…obviously this was pre-web 2.0…
We sold ‘value propositions’ six ways till Sunday. The ‘trusted advisor’, the ‘mortgage planner’, the predictive crystal ball soothsayer, the technician, the take-away, the hard close, the soft close, the assumptive close, the second voice…I’m guilty of pitching every hook in the book to convert a consumer into a client. Our economy is built on debt and we were slingin it from early 2001 till mid 2004.
Regardless of what dog and pony show we put on for a client, the question always came back to: ‘What’s MY rate and how much is this going to cost ME again?‘ So, in late 2004 I threw my hands up in complete and utter frustration with myself for selling every value proposition except the one that was most important in the eyes of most every consumer…rates and cost. While many consumers were thankful for our many talents, presentations and advice, after 30 days most abandoned their prescribed path to better living with less debt.
Over a very short period of time everything became lucid and clear…Screw the ethereal value propositions, if consumers want rate and cost, HERE take them. I pulled out my rate sheets and showed consumers how risk based pricing works, told them I needed to make $X to cover my costs and make some profit. We abandoned the crazy commission split model, purged alot of labor costs, and I never had to ’sell’ another mortgage again.
Instead, what we began to ’sell’ in late 04 was how f*cked up this industry was, like how a lesser mortgage professional would cram them into the best paying programs and never tell them otherwise, what YSP was, how things really ‘went down’. I seeded the consumers mind and turned them loose back into the market, almost without fail they came running back with stories of attempted treachery and deceit. We made less per loan and had less volume but we netted out better at the end of each month, which is the goal of many successful businesses.
This type of action went on from roughly late 2001 to late 2005, then things started to, ahem, tighten up. Our sales pitch sounded exactly like what began as back-page newspaper worthy, working all the way to the headlines of every major news outlet in the USA…The Mortgage Meltdown. The industry was f*cked up, bloated and ‘disingenuous’ it had serious lack of disclosure issues, its very nature was to find anyone that had some financial ware-withal and cram them into the American Dream of Homeownership or convince them to use their home as a low interest ATM machine.
IMO, lenders, most specifically the Alt-A and Sub-Prime fueled Wall Street backed lenders were/are the root of the problem, but this doesn’t make them the only problem.
Since rules were apparently made to be broken, broken rules in the mortgage industry had a name: ‘Exceptions’. An ‘exception’ was granted by lenders if the consumer (via the broker/banker) didn’t quite meet their own underwriting criteria. In other words, they broke their own rules for an extra .25% of the loan amount, which came out of the broker/banker or consumers pocket, sometimes both. What is a broker/banker or consumer going to do at this point? Turn the deal down and lose the home/deal over a .25%?-LOL
It’s easy to look back and see that this practice was ’suspect’ at the very least, but at the time it was simply business.
We found ourselves openly joking about not remembering a lenders name as much as we knew their niche. There was the no VOE lender, the 12 mos bank statement guys, no seasoning specials, it got to be like: ‘Hey who’ll do a 80% plus seller second, 6% concessions 610 stated wage earner with no seasoning?’ What that means is: Have 610 middle FICO and some silly paperwork and you get a mortgage for probably very little money out of pocket, in many cases none.
I bolted the industry in January 2006, closed shop and went into the business of consulting other brokerages on how to lean out and prepare for the tight times ahead.
Fast forward to 2008.
Enough nostalgia, Judgement Day has all but arrived for the mortgage industry and it’s being choked out from the ground up. This is what happens during lean times after an unprecedented boom. The fat gets trimmed, it’s survival of the fittest, those not willing to adapt, adopt and change either burn out or fade away.
Needless to say many of the scenarios I described above are no longer in practice because the lenders that fostered it and the brokers/bankers/consumers that reveled in it are either already out or heading straight for the door. The lenders who are still functioning and used to look for every possible way to approve a loan, now scour files for any reason to turn them down.
So what’s left?
A battle of attrition and nobody’s pulling punches. If you’re still in the industry it’s all about who can push who under The Bus first. Conforming, FHA and VA loans are the only stable parts of whats left of this machine.
The government is preaching transparency while allowing certain designated mortgage businesses the privilege to be exactly the opposite. This isn’t good news for the small to mid size companies.
The ubiquitous mortgage solution circle jerk stands to serve big business and the lobbyists, leaving the small to mid size shops floundering in the wind and ultimately on to another career because of the skewed disclosure laws that favor one side of the business over the other.
If it’s not obvious by now, many powerful institutions with alot of money would like to see nothing more than the mortgage broker sucked up into their vacuum and erased from the landscape. They’ll have everyone believe this is for the betterment of the entire industry. I beg to disagree.
If there’s a new age battle going on, old-school weapons won’t do.
Lets face it, the whole ‘trusted advisor’, ‘mortgage planner’ talk sounds nice and noble but generally goes in one ear and out the other. We offered to help people get to retirement debt free, gave advice on how to ’save thousands in interest’ and religiously offered the cool software that produced fancy spreadsheets to show how ‘quickly and easily’ they could get there or how low their ‘effective interest rate’ could be, if they heeded my ‘advice’.
*Thud*. Thats the sound of sage advice hitting the bottom of their mental trash can. Unfortunately financial planning propositions are of little value to the general consumer, who in the end just wants to know what their rate is and how much the transaction will cost them, period. In a society of consumerism where most people live paycheck to paycheck, they’re far more concerned with how they can save $1000 today rather than $10,000 over the next 10 years.
Instead of delivering the product and information that a consumer wants, many mo-pros today are simply trolling new mediums spouting the same message, the same tired value propositions.
Mortgages really aren’t that hard to explain or understand, it’s the hieroglyphical documents that are supposed to clear things up, coupled with the ‘baffle you with bullshit’ sales pitches that confuse people.
It doesn’t take a degree in rocket science to figure out if you only plan on owning a property for 3 years, then a 30 Year fixed isn’t practical, and you can save money by taking the lower payment a 3 Yr or 5 Yr ARM (often) affords. If you invest the savings, you’ll make money. If you send the savings to the lender every month, you’ll pay the loan off sooner and pay less interest.
I’ve dished the ‘transparency in mortgage’ story in more flavors than Baskin Robbins, yet its all very vanilla…Consumers want to know ‘Whats my rate and how much will it cost me?‘ Whoever can answer quickest, with the most accuracy and deliver the goods in a reasonable amount of time wins in the land of Mortgage 2.0.
Get rid of your dated value propositions, get lean, get naked or get on to another industry.
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The Economic Realities of Transparency for The Mortgage Brood
April 20th, 2008 Categories: Business Models, Mortgage Boom 2.0, Mortgage News, Tranparent mortgage pricing
Transparency in the mortgage industry has become a hotly debated topic over the past 18 months. With major corrections in the marketplace, declining home values, volatility in mortgage securities, and a white hot media focus on the viability of mortgage professionals in general, we are primed for the paradigm shift towards the type of market transparency that has taken over the economics of other commodity markets.
Searching Wikipedia, Transparency has no less than 17 definitions; focusing on the ‘Economics’ classification:
“In economics, a market is transparent if much is known by many about:
- What products, services or capital assets are available.
- What price.
- Where.
A high degree of market transparency can result in disintermediation due to the buyer’s increased knowledge of supply pricing.
Transparency is important since it is one of the theoretical conditions required for a free market to be efficient.”
I was going to delve into it’s philosophical definition and application, but that would cause too many peoples heads hitting their keyboard out of boredom.
‘Web 2.0′ is all about augmenting the speed and lucidity of delivering #’s 1-3. The very expensive technologies that ‘disintermediated’ traditional commodity brokers on Wall Street are now readily available at far less cost to most any industry that deals in information, this much we know. I can today, while being out of the industry as a practicing mortgage broker, monitor what’s going on in the industry better than I could when I was in the day to day grind. Much of the valuable information that was available in ‘expensive’ short supply just 2 years ago is now readily available in buckets.
To a great degree, the resourcefulness of the trusted crowd in the re.net space allows me to maintain a keen perspective about the industry in a fraction of the time. Any consumer who reads the mortgage websites indexed under my re.net tab could assimilate 90% of the knowledge they need to select a mortgage product that is fit for their personal situation.
It makes me smile when I read affluent bloggers post about how valuable their advice is as they simultaneously give it away. Here’s six figures worth of advice, for free. I’ll even expound on Roberts advice:
Next time you take out a mortgage, commit yourself to making the payment a 30 year fixed amortizing loan yields (20 or 15 year fixed payments are even better if you can afford it) that your situation qualifies you for. Execute a 5 year ARM Interest Only (or ‘cheaper’) product, take the difference between your ‘qualifying payment’ and your actual payment, and invest it.
Thats valuable counsel, now its out there for free…I just disintermediated myself 
The mortgage industry, with it’s migration into the Mortgage Backed Securities arena of Wall Street, is square in the same cross hairs that pre dot bomb ’stock brokerages’ found themselves. The environment is strikingly similar: market has recessed substantially, quality information is getting easier and cheaper to find, and its ‘brokers’ are fighting for their careers.
Remember when stock brokers repeatedly uttered how ‘people need my advice’ to choose the right investment vehicle? If someone would have told them then that they would be selling mortgages (or real estate) in the near future, they’d have laughed so hard at you they’d cry. Speculative investment vehicles are far more difficult to evaluate risk in compared to a mortgage, yet I hear many of todays current mortgage practitioners repeating the same ‘people need my advice!’ jargon. Mark Twain said, ‘History may not repeat itself, but it does rhyme’…this is straight-up Nursery style.
Brokering information inherently gets easier, faster and cheaper. If you’re in the mortgage business and you can’t deliver more information to consumers easier, faster and ideally cheaper than your competition, your value is diminishing. The quicker a mortgage (and real estate) professional learns to become an uber resourceful information broker, the more ‘future proof’ you and your business becomes. Banks have already clued into this, they’re positioning themselves to crush the small to mid size shops, continuing to keep Washington in their pockets by lining it’s pockets, to keep the unscientific disclosure laws in place.
How does one compete in an industry that has disparate transparency/disclosure rules? Get lean, efficient and be more transparent than the next guy. It’s always been about survival of the fittest, today is no exception…you must offer more information, be quicker, better and cheaper than your competition.
Mortgage professionals had best stop trying to refine their image on the outside and instead get real personal with how they do business internally, or it’s on to yet another career…
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Zillows Mortgage Community, On The Cusp of an Anonymous Transparent Credit and Personal Information eXchange Between Mortgage Professionals and Consumer?
April 5th, 2008 Categories: Business Models, Mortgage News, zillow
There’s been a storm of activity in and around Zillows mortgage community (ZMC) since they launched a mere 72 hours ago. Based on David Gibbons’ claim that Zillow has received over 4500 ‘leads’ in their first 48 hours, consumer interest is definitely there. Reading Zillows blog, they’ve done their research and are delivering what the consumer wants: an anonymous, transparent vehicle to receive mortgage quotes.
A fact worth reiterating about Zillow before addressing the wants and needs of the other half of this community, the mortgage professionals, is that Zillow is an advertising and media company. Advertising and media companies are keenly interested in the demographical nature of their traffic, the more refined this data is the more valuable it becomes to their paying customers: 3rd Party Advertisers.
By collecting and ‘cookie’ing’ the web-browser of (almost) anonymous members relatively succinct financial and credit information, Zillow is aggregating some very valuable data for sale, just not to mortgage originators. Advertisers will pay a premium to appear in front of people who represent they can afford and are likely buyers of their products. Very well thought out by the brass in Seattle.
Mortgage originators on the other hand seem to be less than enamoured with Zillows offering for reasons identified in my last post…they will likely have to farm through a mountain of rate voyeurs to find a client. Some well respected Mo-Pro’s feel that consumers should be held accountable to a degree of transparency as well. I’m a staunch advocate in transparency for the mortgage industry (read my very first post from 19 months ago, not the best written piece but I’ve left it unedited for effect) and agree the sword must cut both ways in order for a ‘transparent marketplace’ to work. Both sides must open the Kimono.
The dilemma with transparency has traditionally been: ‘How can one be transparent without being taken advantage of?’ For too long consumers have been forced to strip in front of a consortium mortgage originators, ZMC switches this around, making Mo-Pro’s disrobe first, and they don’t like it.
Things have obviously changed, so here we are today pointing fingers, losing business and otherwise trying to figure out the best way to make a business a successful one out of the business that’s left.
For their own clever benefit, ZMC is turning the transparency buzz into advertising dollars. If ZMC does nothing else, it increases traffic to their domain. They’re pleasing the consumer and pissing off the top notch Mo-Pro in the process. This may work for awhile but it would appear to be a matter of time before the good Mo-Pros turn their head to ZMC because the lead pool is deemed a dead pool, even though it has all the attributes of viable transparent marketplace for consumers and originators to conduct good business. As stated, Mo-Pros simply don’t have the capacity to work within ZMC very effectively, yet.
An ideal form of transparency, one that serves both consumer and professional, is akin to being naked with a bag on your head. You get to see all the goods but can’t put a face to the…well, you get it.
Take the time to read Mortgage 2.X and the concept called C2B (Consumer to Business) marketing. The company that was tooling with this concept is now out of business but was ahead of it’s time. In 2003, during a time when mortgage (and interest) rates (in general) were plumeting, transparency wasn’t even a thought because Mo-Pros could charge four points and lower a consumers interest rate by 2%.
So here’s where the novel idea comes in, for all I know Zillow may have already considered what I’m about to suggest, if they haven’t…I’m not in a position to do anything with the thought and someone might as well…
The consumer transparency theory…
In order to enter the ZMC a Mo-Po must submit some verifiable information to prove they are viable. Coupled with the promise of anonymity, the dynamic is very alluring to a consumer.
Zillow can require something similar of consumers. Offer two levels of consumer participation, the current low barrier level and an ‘authenticated’ designation.
Upon enrollment into ZMC from the consumer side, validate their credit score by having them acquire their ’score only’ from the repository of choice, all three offer this service for free to the consumer. This is often the biggest unknown from a consumer standpoint, I can’t tell you how many times someone’s self-estimated vs actual credit scores were off by over 100 points. I’ve had people tell me they’ve had credit scores ranging from “one hundred fifty, I think” to “one thousand something”. Zillow wouldn’t be privy to a members social security number under this scenario either, the information goes straight to the repository, score returns, consumer fwd’s repository doc (minus ss#) to Z…
Have consumers send over signed verifications of income, assets, type of employment et al (could all be done electronically). Although these aren’t meant to replace the docs what a mo-pro will require in any way (see Zestimate), the docs would foster a stronger commitment level and code of coduct enforcement policy by consumers.
The prevailing thought here is Zillow could substantially firm up the quality of consumer information to the community and still insure their anonymity. From a business model position this would be a brilliant move for Zillow as they could then represent the same to both mortgage originators and advertisers.
Quality mo-pro’s would flock to the marketplace to serve this quality of ‘lead’, consumers would be incentivized to provide the information based on the increased likelihood of attention an ‘authenticated lead’ and (most importantly to Z) advertisers could be compelled to spend more $$ for uber-high quality consumer financial and credit demographic placed ads. There is an opportunity here for Zillow to become the trusted marketplace to begin a mortgage transaction and make a lot of $$ in the process while holding to their current business model.
Theoretically, this would create a quality of mutualism and transparency not available in any other online mortgage community. From an advertisers standpoint, one would think they wouldn’t mind paying to promote their products and services in front of such refined, targeted eyeballs.
For fundamentally the same reasons mo-pros can’t effectively service ZMC today, they would have a tough time servicing this Zutopian marketplace as well. Most mo-pro shops are not equipped for volume based loan production, thus cannot afford to charge less per transaction. Typical mortgage industry business and commission split models make the economics of only charging $2000 in broker/banker fees impractical…this another thread for another post, although the topic has been covered previously on this site.
Zillow could be on the cusp of something special…an anonymous transparent credit and personal information eXchange between mortgage professionals and consumer, to create a highly trusted mortgage transaction community…and they could make a lot of money doing it without charging for ‘the good leads’…
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Fannie Mae Releases New Mortgage Qualification Guidelines
April 2nd, 2008 Categories: Mortgage News, fannie mae
Flush with new cash to buy up Mortgage Backed Securities, Fannie Mae has released new guidelines when it comes to credit score, LTV and prior foreclosure standards for borrowers. While my presumptive thought was that they would tighten the screws across the board, Fannie is actually expanding approval criteria in certain instances.
As stated, this is a bit of a surprise as I expected a reflexive credit choke out for a consumer trying to get a conforming loan going forward. Instead the guidelines appear to represent a measured increase in pricing adjustment guidelines. In other words, FNMA didn’t yank the carpet out from underneath everyone, they just built in cost in the form of higher pricing to consumers (thus higher yield to investors).
In a nut shell, conforming mortgage programs that deviate from the very straight and narrow (credit scores below 660, LTV’s above 80%, less than ‘full-doc’ income and asset) just got more expensive.
A few other highlights:
Consumers with prior foreclosures will be subjected to higher qualification standards, a five year moratorium will be required to qualify for a conforming loan with a prior property repossession on record instead of four. A 680 credit score and 10% down payment will also be required.
A 60 day mortgage late on a credit bureau anytime over the past 12 months will not qualify for a conforming loan.
Minimum credit scores for 2 unit properties are 640, 680 for 3-4 unit properties.
Max LTV’s were cut on the high end (95%+) anywhere from 3%-5%. There are still 105% LTV programs available.
Expanded Approval products are now to include the following programs:
Manufactured housing (not mobile homes)
Flexible Mortgages with CLTVs up to 100 percent
Mortgage loans with CLTVs up to 105 percent with an eligible Community Seconds mortgage
30-year fixed-rate IO mortgages (10-year IO period only)
5/1 interest-only ARMs with 2/2/5 caps and 10-year IO period (ARM plans 3515 and 3516)
Three- and four-unit properties
Cash-out refinance transactions on two-unit principal residences
Cash-out refinance transactions on second homes
Cash-out refinance transactions on investment properties
Investment properties with LTVs over 80 percent
Consumers, contact your trusted mortgage professional to see what this means for your specific situation.
Professionals, contact your favorite conforming account executive to see what this means for your business.
X-Out
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