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Blogging on ActiveRain

Nikesh Parekh - CEO of ActiveRain
Nikesh Parekh – CEO of ActiveRain

It’s been some time since I wrote a blog post here on WordPress.  The reason hopefully is pretty obvious : since 2011, I have been the CEO of ActiveRain.com, which is the largest blogging platform and social platform in real estate.

You can find my profile at www.activerain.com/nparekh and Nikesh Parekh’s blog  here at www.activerain.com/blogs/nparekh

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ActiveRain – Largest Blogging Platform & Social Network in Real Estate

I will be blogging most actively on ActiveRain.  I may return to WordPress someday, but for now, the water is fine in the ‘Rain!

Zillow Mortgage MarketPlace Launches: LendingTree in Reverse, For Free

Zillow Mortgage

Well, after much anticipation, Zillow has launched their Mortgage Marketplace.  In typical Zillow-style, they are doing things in the reverse of the lead generation industry which generally has benefitted the consumer, which is to be applauded.  In a nutshell, Zillow’s Mortgage Marketplace requires the consumer to go to Zillow, fill out a form that is similar to a mortgage long form found on LendingTree or LowerMyBills.   The consumer is REQUIRED to register with Zillow to receive bids.  The mortgage information is anonymousely sent to registered mortgage brokers and banks on the site.  These mortgage brokers and banks then respond to the consumer with offers.  It is the then up to the consumer to follow-up with the mortgage broker to get more information.  Consumers rate the mortgage brokers based on their responses and service. 

The Positives:  In general, like most things that Zillow launches, I think it is a pretty bold service that will result  in great value for some consumers.  For consumers who want to fill out a mortgage request and receive bids and spend the time to follow-up on those bids, those consumers will likely save some time and get a good deal.   Assuming Zillow is able to build a significant market of mortgage brokers who are willing to respond to lots of different types of loans (which is the challenge in mortgage – all brokers and banks want the same loans), consumers should win through a competitive bidding process.  If the mortgage brokers were able to see how their competition was bidding and then drop their fees even further, that would be really interesting.

The Challenges: 

  • For the Mortgage Broker: The Zillow Mortgage Marketplace reminds me a lot of the HomeGain Agent Evaluator product that HomeGain launched with in 1999 or 2000.  It was a pretty innovative product that went against the grain of the industry.  Of course, HomeGain was charging a referral fee and Zillow is not, it was a challenging product in that it required the real estate agent or sales person to do a lot of work upfront before receiving contact information or having a strong sense if the lead was qualified or valid.  Lead generation as a marketing medium is challenging in that the sales person must follow-up with the leads to really understand how qualified they and on what time frame the person is going to be buying – really buying, not just what they put info into the form.  With the Zillow Marketplace, the mortgage broker must do a decent amount of work upfront before knowing whether they can even compete for the deal.  I can see a % of very motivated and hard working mortgage brokers using the Zillow Marketplace, but I think the fall off in participation will be significant if brokers feel it is not a good use of their time to respond to inquiries versus their own web sites, direct mail, or purchasing leads.
  • For the Bank: Those who have managed a mortgage lead gen business know that the business revolves around the large mortgage brokers and banks that have massive call centers that need to be productive.     The keys to these call centers are highly qualified leads and VOLUME, VOLUME, VOLUME in a very narrow set of loan parameters or filters.  Zillow Mortgage Marketplace is doing something very different than the way the mortgage industry currently operates.  LendingTree launched in 1998 and the mortgage industry has been adapting to working LendingTree leads over the past 10 years.  Now most banks have large call centers dedicated to working mortgage leads.  It has taken 10 years.  Assuming that Zillow can drive significant volume of mortgage inquiries, Zillow will need to invest in coaching the large brokers and banks on how to operationalize this kind of marketing to get them to be interested and successful.  If Zillow can not drive significant volume, I doubt the big banks and brokers will participate at all.
  • For the Consumer:  BankRate and many of the reputable lead generation firms like LendingTree and LowerMyBills spend a significant amount of time and resources on assuring ethical lending practices, fraud prevention, and preventing predatory lending.  Zillow should easily be able to address this, but consumers should be wary of the different participants in the Zillow Mortgage Marketplace, especially initially until the mortgage rating system is viable.

Zillow continues to be an amazing company.  In real estate, Zillow gives the home valuation information away for free making up the the gap between the $1-3 banner ad CPM in real estate and the  $250 lead gen CPM with volume of consumer impressions.  Now in mortgage, they are giving away free leads to mortgage brokers and banks.  Those leads when monetized by 3 lenders are worth close to $200 a lead.  I assume Zillow is planning on long-term relationship with the consumer and targeted banner advertising opportunity at a CPM ranging from $30-90 on sites like BankRate.

Regardless, Zillow is fun to watch.  My five year ARM is coming to a close and I submitted a lead on Zillow.  Can’t wait to see what happens.

Zillow Launching Mortgage Offering to Compete with BankRate

 VS      

There is no doubt that BankRatehas the most powerful business model in the online finance world.  They have established themselves as the “gold standard” web site for consumers when checking interest rates on home mortgages.  BankRate provides objective information on interest rates and loans and then has rate tables where they list the rates from local banks and mortgage brokers.  Just like movie trailers, the best part of their business model is that the advertisement is the entertainment or the content that consumers are looking for.  Tom Evans and Steve Horowitz engineered an Internet Hail Mary for BankRate in 2005 when they shifted their business model from a paid listing business to a pay per click business that really scales with traffic.  Since early 2005, the BankRate stock has soared from about $10 to $40-50 a share.  It would probably be higher if not for the real estate and mortgage mess the country is facing.  Interestingly, BankRate is one of the only companies in the space that is not seeing wide spread defection from customers. 

Though it has been rumored for months, Zillow just announced that they are getting into the mortgage business.  It is unclear what the business model will be.  VP Jorrit Van der Meulen posted on the Zillow Blogthat mortgage brokers and banks can apply for FREE access to Zillow traffic.  Mortgage brokers have to pay a $25 application fee.  Limited additional details are available.  This is certainly an interesting opportunity for Zillow.  The Zestimates has been very powerful in the real estate industry enabling consumers to do some homework when considering refinancing their house.  Now it seems like Zillow is looking to either commoditize the mortgage lead generation players like LendingTree and LowerMyBills or go straight after the BankRate rate tables

Maybe they won’t charge the brokers for it and just make money from the advertising around it.   Zillow is a bold company.  They have taken the unusual approach of not charging the industry for advertising, but trying to surround the information with banners from Lexus and Pella windows.  The online real estate industry has always believed that best monetization of those eyeballs are from the real estate industry players (real estate agent, brokers, mortgage brokers, banks) and not the associated services. 

Zillow may just prove conventional wisdom wrong…  Or not.

YouWalkAway.com Encouraging HomeOwner Foreclosure?

Was listening to NPR this eveing on the way home from work and they covered an interesting new business that is taking advantage of the rising tide of foreclosures on the market.  Two San Diego lawyers have created a new web site called YOUWALKAWAY.com that provides consumers with a foreclosure kit so that they can literally simply leave their houses in eight months after foreclosure.  Interesting business, but may not be a great thing for the real estate or mortgage industries to promote to consumers.

What do you think?  Interesting and innovative business model, but may be a tough one for the real estate industry to swallow.

Real Estate & Mortgage Round-up: Zillow Gaining Recent Traction

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I thought I would follow-up my previous January post covering the real estate January Effect with a February update.  As interest rates decline and we are entering prime home buying season (spring to early summer), we are seeing suprising resilience in the online real estate and mortgage category.  The BIGGEST surprise is that Zillow traffic has ramped significantly in the month of February.  This is very interesting.  Zillow has made a number of big announcements around acquiring more listings.  There is a high correlation between traffic, nationwide coverage, and the number of listings that a web site has.  Zillow recently broke through the 1 million listings barrier which is a major milestone for the company.  I wonder if the recent uptick in traffic has to do with increased refinance traffic.     

In Tier Two of online real estate, HomeGain appears to be on a tear growing reach nicely over the past three months.  This is largely due to HomeGain’s significant affiliate network and SEO investments.  BuyerLink is the growth engine for that business and is probably doing well in this environment.   

All players in the mortgage lead generation industry (BankRate, LendingTree, LowerMyBills) are seeing increased consumer demand for information around refinancing their mortgage ever since the Fed made its aggressive rate cuts in January.   Notice significant traffic increases in January which appear to have declined in February.  LowerMyBills and LendingTree seem to be experiencing steadier traffic levels.  It is clear that both LendingTree and LowerMyBills have reduced their ads spends significantly over the past six months.  I have been impressed by Experian swapping out LowerMyBills ads with ClassesUSA where appropriate in their banner advertising strategy.

Tier One Real Estate Reach:  real-estate-tier-1-reach.gif

Tier One Real Estate Page Views: real-estate-tier-1-page-views.gif 

Notice how Zillow reach (or unique visitors) seems to be increasing but pageviews have been declining.  Interesting trend.  Maybe an indication of more people checking the value of their home versus spending increased time searching for homes for sale or neighborhood information.

Tier Two Real Estate Reach: real-estate-tier-2-reach.gif

Tier Two Real Estate Page Views: real-estate-tier-2-page-views.gif

Mortgage Reach: mortgage-reach.gif  

Mortgage Page Views:  mortgage-page-views.gif

To Refi or Not? – That Is the Question

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Since I have a decent amount of experience in the real estate and mortgage industries, a number of friends have been asking me if it is time to refinance their ARM or fixed rate mortgage or if they should lock-in a rate on a house they are purchasing today.    Summary thoughts: Rates seem pretty good right now.  There is a chance that they will fall further by the end of the year, but the likelihood is 50/50.  Most experts seem to think that rates will actually rise due to tightening lending standards and a deteriorating US housing market / financial system.

Here are my thoughts:

1) Further cuts likely:  Based on Bernake’s commentary today, further rate cuts are likely before the end of the year due to a slowing US economy.  My sense is that these rate cuts are on the mid-term horizon (maybe three mos or more).  If you are thinking that you want to refinance sooner, my sense is that rates are pretty compelling today.

2) Experts Feel Like Rates Will Rise:  I generally check out the BankRate mortgage expert index to get a sense of where the market is.  Since there was a sense that the Fed was going to cut rates, mortgage rates dropped pretty dramatically and experts have felt that rates were going to rise.  Since I have been watching this index, the experts have been right in that rates have gone up slightly over the past month or so.

3) Watch the Fees:  Terri Cullen of the Wall Street Journal has a good article this week here in Fiscally Fit – WSJ.com saying that banks and lenders are increasing their fees in light of financial weakness.  It’s worth shopping around and then negotiating the fees with the bank or broker.   Pay closest attention to the lender fees as they are the ones that are most negotiable.

4) Personal Financial Decision:  Here is a good post from Active Rain on when you should think about refinancing your mortgage.  Lee Zacharczyk of Atlantic Home Loans in Freehold, NJ says that you should think about 1) How long do you expect to own your home? 2) Where are interest rates from an historical perspective? 3) How long do you expect to be in this mortgage, i.e. will you be able to pay it off early?   

Just like the stock market, experts have long said that it is impossible to time the market.  Home mortgages are the same way.  I would make sure you are comfortable with the long-term rates and the fees you will need to pay to refinance.  If you are getting a good rate with reasonable fees, locking in a lower rate for peace of mind is a worthy trade.  As always, it is important to shop around. 

If have questions or are interested in a recommendation, feel free to email me at nparekh00 `at` gmail

New-Homes Sales Hit 12-Year Low; Mortgage Rates Continue to Drop

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This is not news to anyone tangentially related to the real estate industry, but new home sales have hit their lowest level in the past 12 years.    The average home price dropped 10% to $219,000 in December 2007 from $244,700 in December 2007.  November new-home sales fell 13% to an annual rate to 634,000.  This is the worst rate of home sales since 1995.  No one knows where the bottom of the real estate market is as. 

A combination of factors are driving these trends:

1) Low interest rates in early 2000’s: The Fed kept interest rates too low, too long to spur the economy.  In the real esatet market, this drove lots of new buyers into the market as well as driving up home prices unnaturally.  The spike in home sales pulled all new buyers into buying a home probably 3-5 years before they were ready, front loading a lot of profit and transactions in the market.  Now we are seeing the reverse, where there are fewer buyers than in a normal years because a significant portion of discretionary buyers are no longer in market.

2) New credit products: Simultaneously, the growth of the interest only and reverse amortization mortgage products opened up credit to many home buyers who weren’t qualified to purchase a home or enable buyers to buy more home than they were truly able.

3) Credit risk syndication: Ultimately, the biggest challenge was the syndication of risk in the mortgage ecosystem.  Mortgage originators were incentivized to write loans to any and everyone.  These loans were sold to the mortgage wholesalers who then sold then into financial buyers and institutions.  No one really was on the line to make sure than the loans were quality loans and that the home buyers could repay the loans.  This drove a boom of mortgages (many of them subprime) and now we are seeing the bust period.  Until there are better incentives throughout the mortgage food chain as well as greater transparency into the loan origination process for investors, the syndication or re-sale of mortgages will be challenging for some time (or at least until the market forgets the lessons of the past).

Here is the WSJ article: New-Homes Sales Hit 12-Year Low – WSJ.com

Here is a link to a spreadsheet detailing new home sales from the US Census Bureau.

At the same time, mortgage rates continue to drop.  BankRate‘s mortgage analysis shows that a 30-year fixed mortgage has dropped to 5.5%.  With the Fed expected to further cut rates, we could be in another period of unnaturally low interest rates such that buyers and refinancers may come back into the market in a big way.

Weekly national mortgage survey

  30-year fixed
15-year fixed
5-year ARM
This week’s rate: 5.57%
5.11%
5.35%
Change from last week: -0.18
-0.17
-0.32
Monthly payment: $944.11
$1,314.28
$921.38
Change from last week: -$18.79
-$14.72
-$33.15