Scotsman Guide > Residential > April 2019 > Department

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Residential Department: Backspace: April 2019

 

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Zillow sparks attention with its move into mortgages

Anthony Casa posed the question to a room full of the nation’s top mortgage originators at a conference earlier this year in Philadelphia: Would they be willing to ask their clients to write reviews for their businesses on the Quicken Loans website?

The audience laughed at the idea. Then, when he asked the same people whether they currently send clients to Zillow to write reviews, everyone raised their hands.

“I was completely shocked because, to me, this is now your competitor,” says Casa, chairman of the Association of Independent Mortgage Experts (AIME). “How are you sending your customers to your competitor’s website to give you reviews?”

From Casa’s perspective, Zillow has taken on a totally different role in the real estate business over the past 18 months. The Seattle-based company has evolved from a lead-generation company to one that’s involved directly in homebuying and selling with its Zillow Offers platform and mortgage originations.

Last year, Zillow purchased Mortgage Lenders of America, a 300-employee mortgage company headquartered on the outskirts of Kansas City, Kansas. Zillow paid $65 million in cash for the company, according to Securities and Exchange Commission filings. Zillow then rebranded the acquisition as Zillow Home Loans in early April.

The deal shows that Zillow is “very aggressively ramping up and wholeheartedly planning to be a participant in the market,” Casa says. With Zillow attracting 186 million visitors to its web and mobile platforms each month, that’s a direct threat to mortgage originators, according to Casa.

“I think it’s a huge dynamic,” Casa says. “I think it’s going to have a massive impact. I think Zillow is the company that everybody should be watching.”

The Mortgage Lenders of America purchase is important for the Zillow Offers platform, says Erin Lantz, Zillow’s vice president and general manager of mortgages. The platform allows a seller to request a cash offer for their home. If a deal is made, Zillow buys the home and puts it up for resale.

Zillow rolled out the direct buying and selling program last year in Las Vegas and Phoenix. As of this past February, the company had introduced the program in five other markets: Atlanta; Charlotte; Denver; Houston; and Raleigh.

Zillow Offers is “a new way for people to buy and sell homes, and with it comes a need for a new way of getting financing,” Lantz says.

“We think we’re transforming the way that people are buying and selling homes,” she adds. “We really believe that lending fits into that platform. It’s an essential ingredient of that platform.”

Lantz says the company found the mortgage process was a bottleneck. Zillow thinks it can ease that in a number of ways. For one, the company can work to cut down on the traditionally paper-heavy practice of authorizing mortgages.

I think Zillow is the company that everybody should be watching.
– Anthony Casa, Chairman, Association of Independent Mortgage Brokers

Secondly, since they’re buying properties upfront, the company can get a lot of initial details on the property to speed up the sale once a buyer is found. That’s where Mortgage Lenders of America fits in, Lantz says. The mortgage company will streamline and shorten the homebuying process for Zillow Offers’ clients.

Lantz says she has been out in the field, meeting with lenders and originators who raised pointed questions about Zillow purchasing a mortgage company. She notes that Mortgage Lenders of America originated only 4,000 loans in 2018.

“We’ve got a long road ahead of us just to keep up with the growth of Zillow Offers,” Lantz says. “Our expectation is there are going to be many, many customers who are shopping on our site who will need help from an incredible professional. We intend to continue to invest in that marketplace while we focus [Mortgage Lenders of America] on the Zillow Offers platform.”

Not everyone is convinced that Zillow will cause massive turbulence in the mortgage industry. Zillow’s push into the market bears watching, but shouldn’t generate panic yet, says Scott Olson, executive director of the Community Home Lenders Association.

“They’re a big player in that niche of the market, so it would be foolhardy to not pay attention to what this means with what they could develop,” Olson says. “At the same time, I don’t get the sense that people are sitting around wondering if this is going to revolutionize the business or be an imminent threat.”

Much depends on how aggressive and how successful Zillow is, Olson says. Mortgage lenders currently co-brand with Zillow, so if Zillow ends up being their direct competitor, that could affect those relationships, Olson says. He also says he has witnessed this in business before when a company has success in one sector and then tries to replicate it in another. Sometimes the tactic works, but often, it doesn’t, Olson says.

“You can get bogged down because of different cultures; you can get bogged because it doesn’t translate,” Olson says. “People won’t follow you to the new line of business. People will say, ‘Yeah, I like Zillow, but why would I work with you instead of another lender?’”

He also says companies can cross-sell products fairly easily, but mortgage origination is more of a service. It’s notoriously more difficult to cross-sell services than products, Olson says.

“If it’s a small operation, people may not care, but if it starts to grow, people are going to question that,” Olson says. “I think it’s that simple.”

Casa doesn’t see any possibility other than Zillow growing. Many prospective home sellers go to Zillow to check out their home price before they ever contact a real estate agent. Mortgage originators need to acknowledge this and realize that Zillow could soon be soliciting that audience for “real estate mortgages and every other service in the sun,” he says.

AIME is planning to work with its members to address this potential issue. That might mean creating an alternative website, similar to a Realtor.com for mortgage originators. And Zillow may not be the only tech company headed in this direction. Many originators worry that Amazon could be next. Casa says that Zillow’s experience in the real estate industry gives it a head start.

“To me, when people talk about Amazon, I think Amazon has way further to go than Zillow does,” Casa says. “Zillow could be a dominating market participant in real estate and mortgage within the next 24 months.”

 


 

Jim Davis is editor of Scotsman Guide Residential Edition. Reach him at (800) 297-6030 or jimd@scotsmanguide.com.

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