Risks and Rewards of Disruption in the Home Purchase Process
By Mike Sorohan
February 4, 2019
SAN FRANCISCO--In 2008, the conventional wisdom was "don't get in a car with strangers" and "don't make friends on the Internet." Now, said Julian Hebron, Founder of The Basis Point, San Francisco, it's "Call a stranger and get in their car and be annoyed if they don't show up in five minutes."
At the same time the mortgage industry is undergoing massive changes and disruption through advancements in technology and customer expectations, so is the real estate brokerage business. Brokers are using new processes emerging for the home search, home purchase and home sale process.
Panelists here at the recent Mortgage Bankers Association's Independent Mortgage Bankers Conference said this disruption is having an impact on purchase-focused IMBs, given that real estate brokers are their primary referral source.
"We're not here to talk about Amazon coming into kick everyone's [butt]," Hebron said. "We're here to talk about what you can do at adapt and thrive."
Hebron noted start-ups, tech firms and "incumbents" are all coming together to improve the home buying process. "Everyone is experimenting in some way," he said. "And it's the customers who are driving the process."
Alex Blum, General Manager of the Mortgage Research Center, Columbia, Mo., agreed. "Customers are absolutely driving our business," he said. "What used to be a high-friction process--finding and agent, listing, arranging open houses, moving to the closing process--we've made simple and one-click. We've been very fortunate that our customers have been responsive and happy."
So, what does this mean for the realtor? "We're still going to realtors, of course," Hebron noted. "But this is another channel that is going to gain traction."
"Customers have told us that they want to come to one site; a one-stop shop," said Nate Harbacek, Head of Corporate Development and Director of Capital Markets with Opendoor, San Francisco. "On the mortgage side, we want to see a beautiful product that enables us to reduce friction and reduce fees, to improve the customer experience."
Grant Moon, CEO and Founder of Home Captain Inc., New York, said his company works with 50 of the largest lenders. "One lender we've worked for the past four years said it needed to expand--it had 40 loan originators and wanted to get out of its specific footprint," he said. "The digital mortgage benefits the independent mortgage banker, because as a lender in Colorado you can execute a loan in Texas. Today, that lender has more than 350 distributed lenders that provide a local presence but also have more capital in which to lend."
Blum said his company focuses on capturing customers through leads and online searchers. "We see a lot of people searching online and we try to capture those customers and refer them to our lenders," he said. "One way we do that is see who are searching for mortgage calculators, which is usually the first indication that someone is looking to buy a home. We try to connect them with lenders who can hold their hand through the process. We want to incubate those leads because that's the best value we can provide to our clients."
A recent Blend/Dimensional Research survey of lending and IT executives found that lenders believe they are "under attack" from technological changes and said innovation was among their biggest challenges.
"You do not need to be a high-tech technology company to provide excellent customer service, "Harbacek said. "By listening to what the customer wants and needs and by giving them the tools to do that, you can create and excellent experience. Give them what they need--and if you can do it in a better and more efficient way, that's even better."
"The meeting point of technology and customer service is the ‘sweet spot,'" Moon said. "There are ways you can acquire more, and get it for less, and do it in an efficient manner."
"It's all about efficiency," Blum said. "The more efficient you are, the more you are able to get more customers. If your back-end models are insufficient, you are not going to be able to compete."
Disruption is likely to continue for the long run, Harbacek said. "You can see that in the list of top 10 lenders a year ago and top 10 lenders today," he said. "We're looking for ways to create transactions and move the business forward. The lenders who are open to innovation will be the ones that can compete."
"It comes down to where you are efficient and better," Blum said. "The challenge is to find more efficiencies."
"IMBs can be disruptors--if you do things the right way," Hebron said.