A few months back Zillow, an online real estate database company, made a move that turned some heads in the mortgage industry. After years of providing real estate information to home buyers and, more recently, connecting borrowers and lender via their online financing tool, Zillow announced that they are now originating their own mortgages. This announcement represents a major change for Zillow as it transitions from an advertising company to a full-blown real estate company. Moreover, it represents a major change in the mortgage origination sector, a change that has been developing behind the scenes for several years.
Zillow began as a real estate database, a source of information for potential home buyers and sellers. Their “Zestimate” feature uses a myriad of market metrics to accurately assess the value of a home. Users can list houses for sale or rent, find a mortgage lender through their website, or even sell their home to Zillow through the relatively recent “Zillow Offers” feature. Now that they can originate their own mortgages, people can use Zillow for nearly every step of buying or selling a home. They are on their way to becoming a one-stop-shop for home buying.
Why is it a big deal?
In the end of the day, Zillow is still just another of countless mortgage lenders. Why are they sending out such big ripples in the real estate world?
The answer lies in the broader industry-wide shift that Zillow’s new mission is riding on: the merging of home buying and financing. Securing financing for a home has historically been a complicated process involving hundreds of pages of personal information and countless man-hours spent processing and approving a loan. Applicants, meanwhile, are simultaneously trying to close on their new house, possibly sell an old house, and handle the logistics of moving from one to the other. All the while, they are being asked by their lender to dig up a substantial amount of information such as tax returns, property deeds, contracts, appraisals, and other information that may not be readily accessible.
As information has become more accessible, communication more fluid, and mortgage origination faster and more efficient, the various parts of the home buying process have grown increasingly intertwined yet remained glaringly disconnected. Zillow is attempting to resolve one of the most significant inconveniences of home buying by closing that disconnect between the transaction and the financing.
The company’s attempt to merge the different parts of the home buying and financing processes is a milestone for the industry. It is a signal that technology, data transfer and communication have advanced to such a point as to make such a connection possible and necessary.
How Can Zillow’s Data and Lending Branches Help One Another?
Zillow’s recent blending of big data and mortgage lending has the potential to advance both the user experience and the underlying processing of loan applications. Furthermore, as their fledgling lending branch continues to grow, it could actually end up adding value to the company’s ad-driven business.
The User Experience
The mortgage application experience has the potential to benefit in a number of ways. Home buyers using Zillow will encounter a familiar interface. Zillow’s dependence on their web traffic has, over their entire history, motivated them to maintain a maximally comfortable, user-optimized site. Its millions of users will expect the same degree of simplicity and optimization from Zillow’s loan application process.
In addition, Zillow’s data-centric history will leave them better prepared to meet their user’s expectations of simplicity and efficiency. The vast amounts of information that they have already collected can enable Zillow to focus their loan application exclusively on new information, cutting out redundant inquiries that traditional lenders cannot as easily avoid. In today’s fast-paced world, taking a few questions off the application can save minutes or even hours of the user’s time, and give Zillow a competitive edge in that arena.
Underwriting and Processing
Whatever advantages big data brings to the loan application experience, the potential impact is even greater in loan underwriting and other back-end processes. Where most lenders are manually scouring documents for the data that they need, Zillow has much of that data digitally stored, organized, and accessible. Zillow even has experience applying that data, via their “Zestimate” tool, to automatically estimate property values. The Zestimate tool is a demonstration of Zillow’s ability to harness their database to reach fast, accurate, and potentially actionable conclusions with little to no human oversight.
Zillow’s background and technology leave them much closer to automated mortgage processing than most established lenders. They have eliminated much of the once-necessary data collection and taken large strides towards automating home appraisals. With continued focus on these technologies, Zillow’s mortgage processing speed and efficiency will continue to improve. With most lenders still taking days or weeks to process a loan, others, like Zillow, are racing towards real-time lending decisions that would transform the industry.
Adding Value Back to Zillow’s Ad Business
In addition to the benefit that Zillow’s mortgage business reaps from their database and Zestimate algorithms, the same is true in reverse.Through their new mortgage branch and the Zillow Offers program, Zillow is essentially going behind the scenes and gaining more direct insight into home valuations. Through their direct involvement in the buying and selling processes, Zillow can collect current and detailed real-estate info to help them update their database and continue to improve their Zestimate feature. As described above, these improvements will eventually come full circle, contributing in turn to their new lending operation.
How Should Lenders Respond?
Though Zillow has a strong advantage with regards to their user accessibility and database, their back-office processes are still severely limited. Though the potential exists, Zillow has not yet automated much of the mortgage processing work. The volume of loans that they can process therefore remains capped by the number and efficiency of their underwriters. Mortgage Lenders of America, the loan originator acquired by Zillow, does not have the same processing capacity of larger banks, lenders or fintech companies. In order to stay competitive against Zillow and what is surely a coming wave of similar mergers and innovations, lenders must take advantage of the available technology, streamline their user experiences, and speed up their processing times to make their users’ home buying experience a seamless one.