Zillow Enters the Mortgage Originating Business

Zillow Enters the Mortgage Originating Business

In what seemed like a pretty inevitable move, Zillow has gotten into the mortgage originating business via its acquisition of Mortgage Lenders of America, which is expected to close in the fourth quarter of 2018.

I say inevitable because just about every other major real estate or mortgage player is taking steps to ensure they’re involved in all (or many) aspects of the transaction.

In fact, Zillow noted in its second quarter 2018 shareholder letter that it’s their goal to become “more of an end-to-end provider for housing-related services.”

Obviously, it’s synergistic to do so and creates a new way to cross-sell and perhaps streamline the home buying process.

It’s kind of like how real estate agents have a “mortgage person” in-house to quickly dole out home loan pre-approvals and to ensure their would-be home buyer can actually make it to the finish line.

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Zillow Was Already in the Mortgage Business

  • Zillow has been in the mortgage business for many years
  • Selling mortgage leads to lenders via its Mortgage Marketplace
  • And it owns a company called Mortech
  • That provides mortgage pricing, online rate quoting, and rate sheet generation

For the record, Zillow isn’t at all new to the mortgage industry, with its Mortech arm that provides mortgage rate pricing and related tools, and its Mortgage Marketplace, where they sell borrower leads to lenders.

So they’re not entering the mortgage business, they’re entering the mortgage origination business. They will actually be making mortgages instead of staying on the periphery.

It’s an important distinction because up until this point they were merely doing B2B mortgage stuff. Now they’ll be interacting with the homeowner directly, essentially putting their reputation on the line.

In their second quarter 2018 update, Zillow CEO Spencer Rascoff revealed that mortgage revenue was a not insignificant $19.3 million, with mortgage loan information requests of 6.4 million.

Today’s news is a big deal because Zillow will actually be making mortgage loans for the first time ever, assuming it all pans out.

Why Does Zillow Want to Make Mortgages?

  • They want to be an end-to-end provider of real estate services
  • That includes home buying, selling, and mortgage financing
  • They recognize that getting a mortgage can be awful and time-consuming
  • And want to improve the consumer experience while also reducing their hold time

It’s simple really. They want to streamline the home buying process, and obtaining a mortgage happens to be a pain point. It’s why home sellers prefer cash buyers.

And because Zillow is now in the business of buying and selling real estate, they want more control over how they can unload their inventory, quickly.

In case you weren’t aware, Zillow got into the real estate business via its Zillow Offers venture, which was launched back in mid-2017.

As part of the merger, Mortgage Lenders of America will potentially be a financing option for consumers who purchase a Zillow-owned home through the service.

 

This is what it’s all about today. Instead of having a bunch of unrelated parties running around trying to close a mortgage and a home purchase at the same time, it’s all done under one roof.

Aside from making it faster and easier for the borrower, it should also be cheaper for the companies (company) involved and ideally more profitable.

And as noted, it provides increased opportunities to cross-sell. Why settle for just the home sale commission if you can provide the financing and make money that way too?

Assuming that all goes well, it may be expanded some other way. How is unclear because Zillow also has a pretty extensive Mortgage Marketplace where many other lenders compete for business.

But Zillow noted in its press release that Mortgage Lenders of America originated just 4,400 mortgage loans last year, while consumers submitted a much higher 23 million “loan information requests” through Zillow Group’s various brands.

In other words, Mortgage Lenders of America can act as a preferred lender of sorts, while the other competition remains intact. It’s a bit of a dance to ensure they don’t anger their existing lender customers.

My guess is that there will be some kind of push to use them versus other lenders, similar to what we’ve seen with Homie Loans and Redfin Mortgage.

About Mortgage Lenders of America (MLOA)

  • They’ve been around since the year 2000
  • Based out of Overland Park, Kansas
  • Offer both conventional and government home loans
  • Have funded 30,000 mortgages since founding and are an existing advertising client of Zillow

They are an Overland Park, Kansas-based mortgage lender that has been around since the year 2000, with plans to stay in Kansas despite the Zillow merger.

The company has roughly 300 employees at last count and will continue to operate as it has, offering mortgages via what I believe is the direct-to-consumer channel.

They are an existing advertising client of Zillow, meaning they probably buy leads via the Mortgage Marketplace.

A quick glance at their website has led me to believe that they offer all the typical stuff like conforming loans backed by Fannie Mae/Freddie Mac and government loans including FHA loans, VA loans, and USDA loans.

They don’t seem to offer anything proprietary, nor do they tout any special technology, so I assume Zillow (and their customers) really liked working with them and that’s why they chose them over other business partners.

MLOA has apparently funded 30,000 mortgages since they were founded, and has won various accolades such as “#1 purchase lender” from LendingTree and “Top 10 Customer Satisfaction – Home Lending” by Build Magazine.

They have also been recognized by Inc. Magazine as a top-5,000 fastest growing company in the United States.

Mortgage Lenders of America donates money to a select charity each time they fund a home loan via their “Lend A Hand” program, which supports the Fisher House Foundation, Habitat for Humanity, and Make-A-Wish.

It should be interesting to see how this all works out. Zillow has come a long way since they first launched the Zestimate in 2006…

Speaking of, will those be used in place of traditional appraisals? Probably not…I don’t think Redfin Mortgage is relying upon their Redfin Estimate either. Keyword here is estimate.

Zillow has already been downgraded by Bank of America on the news and the stock plummeted more than 15% after missing revenue estimates. Good start!


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