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From Zestimates to Zilloans – Zillow’s Magic Hat Trick

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I hear Zillow is venturing into the mortgage world. Zillow insiders have told me that while they can’t divulge the details they have an awesome mortgage in the works. Wow! In fact, I’m going to call it Zilloans.

Ever since I heard about Zilloans, I’ve been fantasizing what it could look like. Mmmmmm……. Now, to be honest, my critical mind says, if their Zestimates can’t be trusted then what makes you think their Zilloans will be any better? But, I digress.

My interest in Zilloans is a bit personal. I’ve been originating home loans for a few years years now. In my years I’ve learned that it takes a lot of skill to do this business well and not screw homeowners out of their dreams. I hope that Zillow understands this part of the mortgage. Also, I hope they understand that the mortgage interest rate is not the deal maker. If Zillow doesn’t understand these two pillars then the whole thing is over before it even begins.

ZilloansSo, given my experience in the home loan business, I wanted to see if I could imagine what Zilloans would look like. I give you three possible scenarios.

1. Could it be?…..The Actual Loan Itself?
With the demise of the subprime market and the collapse of the securities market for exotic loans, the industry is left with Fannie/Freddie, loans, VA/FHA and a few major portfolio lenders. I’m not sure what kind of spin they can put on these vanilla loans that would make it awesome.

I know they won’t be able to tinker with the fundamentals of the loan like Debt to Income Ratios (DTI), credit scores, documentation requirements or down payment. We all know what happened to lenders that played around with the fundamentals.

The other option would be to negotiate variances with the GSE’s on such features as income disclosures for self employed, or, second home purchase standards etc. But, from what I know you’ve got to be willing to take some serious risk and have plenty in the bank to obtain an approval on such variances.

I don’t want to sound like Charles H. Duell, who, as head of the US Patent Office in 1899, said the Patent Office should be closed because “everything that could be invented had been invented”. Still, I’m hard pressed to find ways Zillow could truly distinguish itself when it comes to the actual loan.

2. Could it be?…..The Interest Rate?
Maybe Zillow will have the lowest interest rate on the planet. 2% with no closing costs and all that good stuff. The low cost leader. However, anyone who plays that game will tell you the interest rate game is a tricky one. The margin on this is so small that any deviation can kill you. But the lager question is, since when did having the lowest rate ever differentiate anyone and create a long term business?

That is because the only way the rate card works is through bait and switch. Burn! Not only that, nowadays, this is a legal minefield if there ever was one. Additionally, Zillow surely knows that skilled loan officers across the country know how to sell against the lowest interest rate, so it would be very difficult to see Zilloans surviving with lowest interest rate strategy.

3. Could it be?…..The Online Process of Finding a Lender?
“When banks compete you win”. Really? Or did I miss something here LendingTree? How about Ditech? Or “LieTech” as most everyone says. Ouch! Having said that, being the go-between is probably the strategy most likely to succeed. The sites I’ve mentioned above could definitely use a bit of competition. Furthermore, if Zillow is able to make the loan search process easy and quick for consumers then it could very well gain traction with the consumer

For Zillow, this strategy also has the added benefit of being able to charge the participating lenders a fee. The fee can be a gatekeeper of sorts. But, in the long run Zillow will need to do quality checks with the consumer. They would need to do a Zpinion Request (Opinion Request) and solicit some serious feedback from consumers. If they can pull this off, the online “find a lender” strategy could be truly amazing for them.

These are only three possible ways that Zillow could roll out Zilloans. There are more possibilities involving the mortgage process and also consulting related. However, these functions are already served by the lending institution and it would be redundant for Zillow to provide them.

If you can think of other ways in which Zillow could come up with Zilloans, please feel free to add your thoughts in the comments box below.

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8 Comments

8 Comments

  1. Todd Carpenter

    November 3, 2007 at 3:24 am

    I’d be surprised is Zillow did any sort of origination or servicing of loans. They don’t sell houses, why would they loan money?

    I agree that the key to being a successful go between is to find a model that does not focus on rates.

  2. Benn Rosales

    November 3, 2007 at 1:50 pm

    I’m not going to say they wouldn’t do it, but I would ask the question- why? I’ve teased them about Zillow Agents many times, and they’ve said over and over again that that is not their intent- to sell real estate. If thats truly the case, then why bother with lending?

  3. Benn Rosales

    November 4, 2007 at 1:34 am

    This is the first time in history that David G didn’t come by at the mention of Zillow…

  4. Drew Meyers

    November 5, 2007 at 1:15 am

    Benn-
    Don’t worry – I’m sure David read this; he just didn’t comment 🙂

  5. Benn Rosales

    November 5, 2007 at 3:32 am

    not worried, just noting…

  6. Patrick Hake

    November 5, 2007 at 4:05 am

    If they do decide to get into the lending business, will they be required to use Zestimates instead of appraisals?

    I believe that would be called putting their money where their mouth is.

  7. Shailes Ghimire

    November 5, 2007 at 3:34 pm

    I agree with you Todd. I would think they turn out some kind of Lending Tree type website.

    Benn – why? Well, I think there is money to be made in successfully exploiting the Internet. I don’t believe it has been done to the extent it could.

    Patrick – that is a very thought provoking scenario. Let’s imagine a situation where a borrower wants to do a Cash Out Re-finance. This borrower bases his decision to proceed based on the Zestimates. I don’t know of any lender that would base their decision on these Zestimates – so when the appraisal comes in ($400 later), they borrower realizes that it’s not worth proceeding. Then what?

    Very thought provoking!

  8. Athol Kay

    December 1, 2007 at 1:45 pm

    I keep saying that Zillow should get into the Appraisal market. That would end all the bitchin’ about zestimates right then and there.

    “Here’s our ballpark zestimate”

    and

    “If you really want a precise formal appraisal, we have trained licensed appraisers nationwide”.

    Then zillow takes Drew Myers and makes batches of shiny Clone Trooper appraiser guys from his DNA and sends them out with laptops and cell phones to do all the appraisers.

    Seriously, Zillow could have a franchise/lead sending system in place for appraisals extremely easily. It’s a perfect defense for the zestimate as a starting point, and a natural lead in for an an appraisal sale.

    The only difficulty with my plan is holding Drew down to get DNA samples. He’s kinda squirmy.

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Economic News

How small businesses can keep up with the changing workforce

(ECONOMIC) Trade schools are booming as career outlook grows. College enrollment is down. The workforce is changing. How can small business keep up?

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Trade employees in the workforce

College enrollment has dropped off by three million in the last decade, with a drop-off of one million due in the last several years as a direct side effect of the Covid-19 pandemic. This phenomenon clearly does not bode well for the future of the United States’ economy and workforce, with students who attend low-income schools and come from low-income families being the most affected. These changes are disproportionately affecting students from low-income schools and families, the very people who need higher education the most, and are erasing much of the work done in the last decade to help close the income and race gap between students, colleges, and socioeconomic backgrounds.

Enrollment in trade schools is skyrocketing.

Recently, trade schools have seen a 40% bump in enrollment across the board. Many students are enticed by the fact that trade schools are affordable and offer a quick turnaround, with students paying $16,000 or less for their program, and their training taking a year or less to complete. Beyond that, those who complete trade school is all but guaranteed a job on graduation day. Their earning potential is often two or even three times higher than the initial cost of attending the program. As many have found, the same cannot always be said about those who pursue a college education.

While the average cost of college at an in-state and public institution hovers at around $28,775 per year (according to Forbes) and takes an average of four years to complete means that trade students have a cheaper educational cost, (between $16,000 to $33,000 for the entire program, or about equal to just one year of a public college tuition) can get work in their field more quickly, and can usually make more than their educational costs in their first year on the job. Tradespeople make an average of $54,000 fresh out of trade school, which rivals the role average college student’s first salary of $55,000. It’s no wonder so many people are choosing to forgo a formal education for trade school!

The almost insurmountable cost of college combined with ever-growing inflation and a lengthy list of requirements just to get a post-college job, all for a low salary and with students having hefty loans to pay back, also play a key role in the downturn in the popularity of college.

The implication of fewer college-educated people, however, means that over time, the United States as a whole could face an economic downturn, as it gives rise to many more blue-collar workers. This can irrevocably alter the makeup of the workforce. Despite current unemployment rates being among the lowest they’ve ever been, the American people are already starting to see a shift in the labor market.

Already, we see a strain in the labor market when 25% of skilled workers in the U.S. exited the workforce following the Covid-19 pandemic. The economy has become so highly specialized that if the U.S. were to keep up the trend of losing college-educated workers, there could irreversible damage to the United States’ economy, deepening the ever-growing divide between the middle class and the working class, further reducing the ability to affect the global economy, knocking the United States out of the classification of a “global superpower.” To make matters worse, much of the United States labor pool is outsourced, and we are seeing the rise of artificial intelligence and robotics taking over many jobs, especially minimum wage jobs. While none of these factors alone vastly affect the U.S. labor market, this is only the tip of the iceberg.

So what can employers do when the makeup of the workforce starts to shift?

Employers could shift the focus on the years of experience rather than the type of education the potential employees have, as well as offering more extensive on-the-job training, which is already commonplace in some industries. Even for those with a college education, the requirements for entry-level jobs seldom match the salary, with many employers requiring a four-year degree, two or more years of experience, and fluency in different programs which vary from company to company. Employers, if possible, need to offer higher salaries with fewer requirements, as many young people are finding the pursuit of college, plus the various other requirements just to be considered for a barely above minimum wage job, while they’re drowning in student debt fruitless, so they forgo college altogether.

A post-pandemic society looks vastly different, and employers must adapt to keep up.

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Economic News

Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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