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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.

Writer for national real estate opinion column AgentGenius.com, focusing on the improvement of the real estate industry by educating peers about technology, real estate legislation, ethics, practices and brokerage with the end result being that consumers have a better experience.

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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

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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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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