Mortgage, Refi & Home Equity Archives - Page 3 of 3

Zillow and RedFin Cater to Do-It-Yourself Homebuyers

By Jim Bruene Posted on February 8, 2006
Categories: Mortgage, Refi & Home Equity, Zillow

In many urban markets, new tools aimed at homebuyers are about to alter the purchasing paradigm. These tools, which make it much easier to scour home listings, determine market value, and make legally binding purchase offers, are slowly diminishing the role of the real estate agent, especially on the buy side (sellers still need access to the multiple listings). Already, 24 percent of recent homebuyers first learned of the home they eventually bought through their own Internet research (see Note 1 below).

What does this have to do with online finance? Plenty. With 77 percent of home buyers already using the Internet in their home search (see Note 1, below), the online real estate venues will begin to play a much larger role in the process. Financial institutions that get their name in front of homebuyers early in the process have a much higher likelihood of being chosen as the mortgage lender. And with buyers less likely to contact a real estate agent early in the process, traditional agent referrals will become less of a factor in the mortgage-purchase decision.

The Latest Homebuying Resources

Zillow <zillow.com>, the Seattle-based company launched Feb. 8 to much fanfare (so much that it crashed the site) including favorable articles in Walt Mossberg’s Wednesday WSJ column, Seattle Times business section, The New York Times, and many others. Zillow, started by former Expedia founder and CEO, Rich Barton, allows users to research comparable housing market values, both current and historic. Similar services have been around for almost a decade, but none match Zillow’s depth of information and ease of use (click on screenshot right for a closeup). Note: Zillow is using an advertising business model. Currently, it displays Google AdSense ads on the right, banner ads across the top, and other ads scattered throughout the site. Real estate brokers and lenders are expected to be major advertisers. ZipRealty, a buyer’s agent that rebates 20 percent of the commission, is a major sponsor at launch. Other similar services: HouseValues.com, HomeSmartReports.com, and HomePriceCheck.com (from LendingTree).

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Redfin <redfin.com> another Seattle-based startup, provides not only home-value data, but also overlays home-for-sale listings and recent sales on a satellite image of the neighborhood (click on inset for closeup; red boxes are homes currently for sale, blue-green indicates a recent sale). And with a business model that includes pocketing 1/3 of the home-sale commission, while rebating 2/3 to the buyer, it offers a potentially disruptive business model to the real estate industry which generated more than $60 billion in commissions in 2005 (reference: Seattle Times, Feb. 5, 2006). Although the site covers only the Seattle metro area at this time (which generated $1 billion in commissions in 2005), its primarily California-bred executive team is planning a San Francisco area launch later this year.

Action Items

Keep abreast of homebuying venues in your market areas. Consider advertising or sponsorship opportunities to drive new buyers to your financing options.
Improve the visibility and benefits of your mortgage preapproval program. Look at what Third Federal has done with its Mortgage Passport, a lifetime mortgage preapproval service (NetBanker Jan. 23, 2006).
Develop a robust real estate marketplace for your website. Use your impartiality as a drawing card, e.g., "Looking for a home? Check out yourbank.com’s Real Estate center, where we show you how to find ALL the homes in the market, not just the ones your agent wants you to see."
For those not currently receiving referrals from real estate agents, consider adopting the Redfin discount real estate agent model, helping buyers earn large commission rebates. You could even take it one step further, allowing the rebate (which could be as high as 3 percent of the purchase price) to pay for all or part of the down payment at closing.
Run this scenario by your legal department: The bank refers customers to a flat-fee real estate attorney who handles the purchase offer and subsequent negotiations for a pre-set fee; let’s call it $500 (see Note 1). The remainder of the buying agent’s commission is used as down payment for a mortgage from your bank. On a $400,000 home, that potentially makes more than $10,000 available for the down payment.

Big Caution: Anyone helping cut real estate agents out of their full commissions will be extremely unpopular, and will face backlash from the local real estate industry. This strategy (#4) works only for financial institutions with relatively few ties to the existing homebuying power structure.

— JB

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Looking for ARM conversions

By Jim Bruene Posted on January 31, 2006
Categories: DiTech, Mortgage, Refi & Home Equity, Search Engine Marketing

The Wall Street Journal’s Ruth Simon writes today about how lenders are using the rise in short-term mortgage rates to convince borrowers to swap their adjustable-rate mortgage (ARM) for a fixed-rate one. She told how CitiMortgage, Wells Fargo, and others are targeting borrowers through direct mail, statement inserts, and telemarketing campaigns.

To see if these tactics had spilled over to the online world, we tried a few Google searches to see who was advertising "ARM to fixed-rate conversions." The only highly targeted ad was by DiTech, <ditech.com> the online lending unit of GMAC.

Under our search, "trade ARM for fixed mortgage," their AdWords promotion used the headline, "Dump Your Adjustable & Get a Fixed Rate Loan from Ditech.com" (click on screenshot above for a closer look), exactly what we were looking for. Unfortunately, DiTech has not created a landing page that speaks to this niche. We were dumped on their busy homepage (click on screenshot below for a closer look) and left to our own devices to figure out how to accomplish this intricate task.

Analysis
It’s simple to see what went wrong here:

Great search engine marketing
+ horrible website execution
= wasted $$$$$

The old advertising cliche about the fastest way to kill a bad product is with great advertising is doubly true with search engine marketing. Great search engine marketing increases click-throughs, driving costs through the roof, while poor website execution pulls conversions down, making the whole effort appear terribly cost ineffective.

So before launching any clever search engine campaigns, make sure you are able to cash in on the traffic.

—JB

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Third Federal Savings & Loan Lifetime Mortgage Approval

By Jim Bruene Posted on January 23, 2006
Categories: Loans & Credit, Mortgage, Refi & Home Equity

Thirdfederal_mtgpassport_card Ohio’s Third Federal Savings & Loan <thirdfederal.com> Mortgage Passport program might be the best relationship program we’ve ever seen. The free program promises a lifetime of preapproved mortgages and/or refinances, subject to a few simple rules:

— Owner-occupied housing within the bank’s lending area (all of Ohio and parts of Kentucky and Florida)
— Maximum LTV of 85 percent for loans less than $650,000; 60 percent for loans higher than $650,000
— Have never declared bankruptcy or been foreclosed on

Features

Mortgage is preapproved: Members are guaranteed a mortgage loan provided they meet down payment/equity requirements (15 percent for up to $650,000, 40 percent for higher) and have not filed for bankruptcy or been foreclosed on.
Lifetime membership: The preapproval is good for the lifetime of the member provided the above criteria are met; future credit score and income does not matter.
Reward programs: Members are automatically enrolled in Passport Rewards which promises prizes and "special gifts" throughout the year.
No program application required: Membership in the Mortgage Passport is by invitation only (preapproved) based on credit history; users receive an ID in their preapproval package that is entered into the bank’s website (application is still required for a new mortgage/refinance); mortgage site powered by privately held Mortgagebot LLC.
No maximum debt-to-income ratio: Provided the above equity measures are met, the bank lets the home buyer determine the house payment they can afford.
Downloadable, preapproval letter: Members can download and print a mortgage preapproval letter at any time to use when house shopping; no preplanning is required before hitting the open houses; and members can choose the loan amount to be cited in the letter.

Analysis
In the age of identity theft, layoffs, and mysterious entries on your credit report, it is reassuring to know that once you’ve joined Third Federal’s Mortgage Passport program, you’ll never have to worry about being approved for a mortgage again. This prevents the sad cases where consumers who’ve lost their jobs are stuck in their oversized house or mortgage because they can’t qualify for new, lower-priced financing.

And talk about engendering loyalty. Would you ever move your banking business away from a company that gives you a preapproved mortgage for the rest of your life! That’s better than free bill payment by just about every measure.

Assuming the underwriting is sound, the only downsides are:

Limitations of "by invitation only": While it creates exclusivity and ensures the highest credit quality, what about prime prospects just moving into Ohio or Florida that have not received the bank’s preapproval offer? There should be some application process to receive the coveted "invitation."
Undermarketed on its website: Again, because of the by-invitation-only nature, the program’s promotional material is low-key so as not to disappoint the majority of visitors not previously qualified for the program. The bank provides a homepage link (click on the inset for a closeup), but the tiny, almost unreadable copy says only, "Click here if you’ve received an invitation to participate in our passport program."

—JB

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Mortgage OneAccount from the Royal Bank of Scotland

By Jim Bruene Posted on February 1, 2005
Categories: Mortgage, Refi & Home Equity, Royal Bank of Scotland

Speaking of combined accounts (see Higher One), why isn't anyone in the United States offering a combined mortgage/deposit account, a product that's been quite popular in the UK ever since Virgin pioneered the concept in 1997.

The OneAccount, now wholly owned by The Royal Bank of Scotland, has grown to 160,000 accounts with US$20 billion in loan commitments ($125,000 per account).

Analysis
While a combined mortgage/deposit account probably won't appeal initially to mainstream consumers, it's a potential PR and marketing gold mine. Using deposit totals to offset mortgage principal balance creates significant savings when compounded 30 years.

For example, a $1000 average "deposit" balance used instead to offset the mortgage balance, returns 5-to-1 in interest savings over the life of the loan (using 6% rate), e.g., a $5000 savings. The savings are more if interest rates increase.

Deposits used to offset the mortgage balance provide a rate-of-return equal to the mortgage rate. For example, your customers with 6% mortgages, earn 6% by using their deposit totals to offset the mortgage balance.

The Business Case
At first glance, the combined account seems to have a challenging business case. Every dollar used to offset the mortgage balance is one less dollar earning the spread between deposits and loans.

If you already have the majority of your customer's deposits AND loans, forget about this offering. Enjoy your success!

But if you are looking for ways to increase your home-secured lending business, this product has real potential to bring in new outstandings.

If you'd like to learn more about the future of online account aggregation, check out the Online Banking & Bill Pay Forecast: Current, future and historical usage: 1994 to 2016 from our sister publication, The Online Banking Report.

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Online Home Equity Lending to Heat Up

By Jim Bruene Posted on January 20, 2005
Categories: Mortgage, Refi & Home Equity

Capital One Financial‘s purchase of online home-equity lender eSmartLoan for $155 million on December 14 (press release), should increase the level of innovation in this market in the coming years.

eSmartLoan originated about 12,000 home equity loans in 2004, totaling more than $1 billion, just two-tenths of 1% of the national total of $431 billion according to SMR Research Corp. The 2004 total was up more than $100 billion (35%) from the $320 billion in home-equity loans were originated.

Under its previous owner, National Bank of Kansas City, the online lender was willing to lend up to 125% of the home equity (LTV).

If you’d like to learn more about the how to optimize online lending, check out the latest report on the subject from our sister publication, the Online Banking Report.

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Online Referrals for Real Estate Agents

By Jim Bruene Posted on December 9, 2004
Categories: Lead Generation, LendingTree, Loans & Credit, Mortgage, Refi & Home Equity

Link: WSJ.com – Online Referrals For Home Sales Gain a Toehold.

Here's a way to gain incremental mortgage sales, new banking customers, and potentially a bit of direct fee income from your online services.

Develop an online real estate agent referral program.

Visitors would be able to query your website to find qualified agents specializing in their target neighborhoods. You could do it as a pure marketing play, with no incentives or referral fees; or you could provide eye-popping incentives, such as $2500+ gift cards from Home Depot or American Express offered by LendingTr ee at their realestate.com site.

In the LendingTree program, the value of the gift card depends on the size of the home purchased and/or sold (you receive an incentive for both buying and selling) as follows:

Incentive Combined Value (bought & sold)
$250       $100,000
$500       $150,000
$1000    $250,000
$1500    $350,000
$2000    $450,000
$2500    $550,000
$5000    $1.1 million
$10,000 $2.1 million

The incentives are funded by the agent receiving the referral, who rebates a third of their sales commission to LendingTree. The consumer ends up with approximately $500 for every $100,000 in home value over $50,000.

LendingTree also tacks on an extra $100 if the buyer gets the mortgage from a LendingTree lender.

Currently, 7% of home buyers say they found their real estate agent through the Internet. (Source: National Association of Realtors study of transactions in 2003 and 2004, as cited by The Wall Street Journal, Dec. 9, 2004)

Caveats
This strategy is not for the faint of heart. While consumers will love it, driving additional business to your mortgage products, most real estate agents will hate it. So you have to weigh carefully whether it's worth the potential heat. If you rely on real estate agents for mortgage leads, you might want to consider the non-incentive version, where you simply forward home sales leads to agents based on zip code.

— JB

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