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Developing a “super app” for consumers. Adopting – and strengthening – the ubiquitous ShowingTime suite for agents. Striving for a larger share of the lead generation market.
Those have been some of Zillow’s most prominent public goals since the Seattle-based real estate search giant closed the book on its equity-intensive iBuying program last year.
But at the heart of those efforts is a less flashy — but no less ambitious — plan to transform the listing portal from a relatively small player into a major powerhouse in an area for which its legions of users websites traditionally haven’t turned to Zillow: mortgage lending.
“Zillow Home Loans is central to our vision of building the super housing app — a single digital experience to help customers with all their real estate needs, including buying, selling and financing,” said Racquel Russell, the company’s vice president of partner success. in a statement to Intel.
Zillow’s efforts to boost growth in its mortgage business will require nothing less than a retooling of its user interface, a deeper integration with Premier Agent partners and a significant investment in the loan officer operation, according to a review of shareholder and shareholder documents from Intel and interviews with Zillow executives.
It is also geared towards reaching a specific clientele: buyers who prefer to start their home search with financing approved.
“From a mortgage perspective, we’re building a digital experience with pre-approvals and fully underwritten tools,” Zillow president Susan Daimler said in a previous interview with Intel.
All in all, it’s such an ambitious plan that when Intel brought up the idea on a call with real estate analyst Mike DelPrete, he immediately began listing the challenges the company would have to overcome to get its mortgage business where it wants to be. to be. .
“Zillow may or may not figure out the magic formula,” DelPrete said. “But if I had a dollar for every time I heard a company say, ‘Yeah, we’re going into mortgages,’ I’d be a millionaire.”
For their part, Zillow executives seem aware of the steep hurdles ahead and are already piloting a fundamentally altered workflow in four test markets.
And the scope of the expansion comes at a key point for the company’s mortgage operations.
Low point or springboard?
When Zillow talks about the future of its mortgage division, it refers specifically to the growth of its buy-to-let business.
The other arm of Zillow’s mortgage business — refinancing — accounted for the bulk of Zillow Home Loans’ activity throughout most of the pandemic, reaching over $1 billion in loan refinancing volume in the first three months of 2021.
But when mortgage rates rose last year, homeowners definitely lost the itch to refinance. By the fourth quarter of 2022, Zillow’s refinance loan volume was close to zero — about $5 million to be exact.
Image | Daniel Houston
Still, in the chart above, it’s clear that Zillow was able to make strides in its loan purchase volume through 2022, during a time when lenders broadly reported fewer purchase loan originations. It’s that broader base of purchase loans that the company wants to use as a springboard to launch its continued mortgage expansion.
But mortgage sharing has done its job. In the short term, it’s unlikely that Zillow Home Loans will replace the revenue lost from the nationwide refinancing crash.
Image | Daniel Houston
This reduction in revenue has also coincided with an intensive shift of resources from Zillow to a more loan-acquisition-oriented mortgage operation.
Together, these factors have made Zillow Home Loans an even less profitable arm of the listing giant’s business.
Image | Daniel Houston
As illustrated above, in recent years Zillow’s mortgage division only posted positive pretax operating income in the second half of 2020. Before that, its losses had hovered around $10 million per quarter. After the initial refinancing frenzy began to fade, operating income turned negative again, approaching regular quarterly losses of $25 million or more.
By the second half of 2022, the mortgage division was operating at roughly double those quarterly loss levels.
In a Feb. 15 call with analysts and shareholders, Zillow Cappointed Financial Officer Allen Parker said the mortgage segment’s recent losses were due in part to the company’s investments in its direct-to-consumer mortgage platform, loan officer tools and integration with Premier Agent.
“We believe these investments lay the foundation for Zillow Home Loans to serve a much broader set of customers, many of whom we currently refer to third-party lenders today,” Parker said. “We expect the funding to be a key driver behind growth in our share of customer transactions and revenue per customer transaction.”
But how does the company expect to get there?
That’s the plan Zillow executives presented to investors and in response to questions from Intel.
Users and agents – a two-pronged approach
For now it remains a relatively quiet part of Zillow’s operations; but in four metro areas, the company’s mortgage expansion plan is well underway.
In Atlanta, Denver, Phoenix and Raleigh, the company is already rolling out an early test version of its new mortgage strategy. And there may be early signs that it’s a viable model. Customer adoption rates in the Raleigh market have increased to 20 percent, up from 15 percent three months ago, according to investor documents reviewed by Intel.
The tests are already producing feedback that Zillow is using to tweak the process.
“We’ve heard from agents that they want to be able to choose a specific loan officer for their client to work with when they transfer them to Zillow Home Loans,” Russell said in the statement.
This strategy is built around two primary ways to find mortgage customers: Direct-to-user tools on the website and Zillow Home Loan referrals from the company’s Premier Agent partners.
Trying to convert more Zillow users into mortgage customers is even trickier than it sounds. Zillow has a huge base of monthly users, but few of them know that it is a place to go to get a home loan. The new path for Zillow represents nothing less than an “internal mental shift” in how to present its home loan options to the consumer, Daimler told Inman in December.
The new process would make it easier to find Zillow home loans on the site, prompting users to get pre-approved and signed off on by Zillow before even connecting with an agent. To help this process, the company is developing a new consumer-facing mortgage origination interface that is being used in four test markets.
But in addition to direct user conversion tools, the company is integrating its mortgage offerings with the Premier Agent network. About 1 in 5 agent partners in the four test markets are referring customers to Zillow Home Loans, the company reported in shareholder filings.
“Each customer’s real estate journey is unique,” said Russell, “but when those customers are ready to talk financing, Premier Agent is able to transfer the interested customer directly to Zillow Home Loans through the Zillow Premier Agent app.”
On top of these changes, the company is working to increase the capacity of its loan officers by investing in better tools and other resources. Rather than turning away some potential borrowers as it has sometimes had to do, the company wants to ensure it has the resources to handle a larger volume of purchase loans if that demand materializes.
The way forward
When Zillow is asked by investors or analysts why it’s doing so well on this path, it points to some reasons for optimism.
Nearly half of home buyers start their search with financing, for one thing. This has informed many changes to the company’s site and processes that are underway today.
“Financing is where many customers begin the buying process — they want to understand what they can afford, and it’s an essential part of the transaction,” Russell said in the statement. “Forty-six percent of customers who come to Zillow are looking for financing, and we’re building products and experiences that make it easier for customers to get financing information when they come to Zillow to start the home buying process.”
The early response within the test markets is also encouraging for Zillow executives. There have been responses from both consumers and agent partners suggesting that eventual wider distribution may succeed in reaching more consumers.
But until that showing produces the kind of results Zillow expects to see down the line, some real estate watchers are likely to remain skeptical.
“It’s very difficult to ‘bond the mortgage,'” DelPrete said. “That’s just two words in a sentence with quotes around it. But it’s a very, very, very difficult proposition, and we have this history of big, smart, successful, well-resourced companies trying to do it that and they fail.”
Zillow’s biggest play in this space came in 2018 when it bought Mortgage Lenders of America. At the time, Zillow said the move was primarily intended to “streamline and shorten” the process for customers who bought homes through Zillow Offers — the company’s now-defunct iBuyer business. Now Zillow Offers is gone, but the company’s mortgage business remains.
Its future will depend on how Zillow users react to the new platform and the processes it is developing now.
“I’m not disputing that Zillow has a lot of eyes and a lot of reach,” DelPrete said. “I’m saying if selling mortgages to people was easy, they would have figured this out a long time ago.”
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