Are the Old Ways Really Dead in Mortgage?

It was an honor to be chosen as a keynote speaker for the recent SourceMedia Mortgage Technology conference in Ft. Lauderdale. It was a good conference and I am glad that I attended. For my session, I was asked to talk about the way we attract, manage and ultimately close mortgage leads. I’m not sure some of the attendees expected me to take that conversation where I did.

My contention has been for some time that if we continue to buy mortgage leads the way we always have and don’t make some effort to change the way we work with those leads, there is very little chance that we will be successful in the future. In fact, I went so far as to compare the old way of mortgage marketing to some declining businesses, like telephone directories and video rental stores.

I noticed a smirk or two from out in the audience. No one wants to believe that the dire prediction will actually apply to them. Let me tell you why it will.

To set the stage for this conversation: I’ve been at the helm of Mortech since its inception, initially as its founder and today as vice president of mortgage tools for Zillow, the firm that bought Mortech in 2012. Our business is all about helping front line loan originators understand the marketing function and succeed at performing it. I tell you this not to promote my products, but to give you some confidence in the startling data I’m about to share with you.

The mortgage industry spends millions of dollars on leads, many of which are now coming through Internet sources. We know that north of 80% of all borrowers are going first to the Internet to get information about their next mortgage, so it makes good sense to harvest leads there. That’s not a problem, in and of itself. The problem comes from what lenders do after they get the lead.

Some will tell you that the key to understanding online mortgage lead conversion is buying the right type of leads, long form, short form or rate table marketplace. I don’t think that’s true. I don’t think it matters that much. What does matter is how the lender interacts with the borrowers after the leads are delivered.

In our own study of top producers, we found that the very best loan officers close more loans regardless of where the leads come from. But that’s only half of the story. The other half is that these same top producers also burned through more leads, leaving more business on the floor, than other originators. Why? Because these professionals jump on leads quickly, qualify them very quickly and drop all contact with those who can’t be moved to apply immediately. Only a small fraction of the leads you buy will be ready to close immediately. A great many more will be ready in 30 days. Those leads get wasted by top originators.

The story is even worse for middle-of-the-road originators. These loan officers don’t even call on 50% of the leads you give them. Half of all of the leads handed down to loan officers never even get a phone call. Sadly, many lenders do not have technology in place to check on these leads and to quickly transfer them to an LO who will call on them.

And what about leads that take more than 30 days to convert to apps? Forget about them. That’s what lenders do. Why? Because most have no way to nurture those leads until they are ready to close.

Online marketing studies reveal that only 21% of the leads purchased from online sources are actually closed, pushing the effective lead cost per closed loan well into the high hundreds of dollars. That’s only slightly better than one in five.

In the old days, closing one loan out of five leads may have worked out for the majority of lenders. Tomorrow it won’t. Our compliance costs are rising, our ability to attract and motivate top loan officers has been restricted and the costs of not responding quickly to consumer demands for information are higher than they’ve ever been. With the easy ability to post negative feedback about lenders onto the federal regulator’s website for the entire world to see, it has never been more important for loan originators to learn how to effectively handle the leads they buy.

Otherwise, lenders will basically be buying their way out of business. Doubt me? Don’t feel bad. The phone book advertising sales guys probably felt the same way.