Editor’s note: This feature originally appeared in the October issue of MReport.
Amazon, the online retail giant, has had its eyes set on real estate for some time now. In July of this year, it finally took its first tentative steps into the market by partnering with Realogy, the nation’s largest real estate brokerage. Together, Realogy and Amazon launched an initiative called TurnKey. According to a report in Curbed, Amazon hopes to launch its smart home and smart services business through this initiative.
This, of course, would not be the first time Amazon has impacted the housing market. The announcement and subsequent shortlisting of cities where the Seattle-based behemoth planned to open its second headquarters (HQ2) saw the housing markets in all those cities registering a jump in demand and prices. The ultimate winner of this year-long exercise—Crystal City, Virginia—has not only seen a spike in demand in the area but also a housing boom in the neighboring Arlington and Alexandria regions. According to a Redfin report, the Amazon “HQ2 effect” has “become a permanent factor in the Arlington and Alexandria housing markets.”
Why are these nuggets of news so important now? Simply put: they are emblematic of a trend toward an influx of new players in the mortgage and housing sectors, many of whom weren’t traditionally operating in this space. The primary factors driving these forays are fintech and the interest of private equity firms.
In 2019, the competition for using digital lending platforms not only reached a new high but also resulted in many non-traditional financial institutions joining the fray after being backed by private equity. According to a Forbes report, “The drive to modernize the mortgage industry is expected to result in roll-ups of the more promising digital players by private equity firms and strategics.”
The Fintech Factor
Homebuyers today have more choices than ever before when it comes to financing a loan. For example, Better.com recently partnered with Ally Bank to offer end-to-end digital loan processing. The idea for their business was actually born out of the founder’s difficulties while securing financing to buy his own home.
Vishal Garg, CEO and Founder of Better.com, told MReport that he had lost a bid to an all-cash deal thanks to an inefficient mortgage process that required an extensive back-and-forth between him and his lender.
“Using the down payment I would have used on the house, I created Better.com to allow customers to take complete control of the process,” Garg said. He explained that the company’s platform helps customers to upload and eSign documents, get loan estimates in seconds and a pre-approval letter within minutes. “They can reach us for guidance and support whenever they need— through email, text, phone, or chat. On a macro scale, the digitization of the mortgage industry has made the process easier, cheaper, and faster for the consumer,” he said.
Haus.com, a real estate co-investment and technology company, offers another innovative method of financing with an eye on millennials—one of the largest homebuying cohorts and also one that is saddled with enormous quantities of student debt.
Jonathan McNulty, CEO of Haus told MReport that, compared to traditional housing mortgages, their financing model helped borrowers by lowering their monthly payments by approximately 30% and bringing in liquidity through co-ownership.
“It allows owners to look at their home fractionally,” McNulty said. “Imagine your house is broken up into tiny pieces that you can buy or sell. You build equity, buying shares of your home each month, but you can also sell some of those pieces you’ve bought, tapping your equity in real-time. It’s an entirely different way to think about homeownership.”
As these new players enter the market, traditional mortgage companies are working to adapt and innovate as well.
“Forward-thinking lenders and fintechs are embracing technology to simplify the mortgage process in order to attract and keep customers, as well as maintain profitability,” said Tammy Richards, COO, loanDepot. In fact, Richards said loanDepot has invested more than $100 million in its proprietary technology called mello and its end-to-end digital mortgage called mello smartloan.
Banks like TD Bank and Chase are also partnering with fintechs to build their digital capabilities.
“We’ve made strategic investments in a new loan origination system (Encompass), a comprehensive pricing engine (Optimal Blue), and a self-service digital mortgage application (Roostify)—all of which have been game-changers for our business,” said Rick Bechtel, Head of U.S. Residential Lending for TD Bank. “The launch of our online mortgage application earlier this year transformed TD into a 24/7 mortgage business.”
As a result of the digitization, a significant percentage of TD Bank’s digital applications today are submitted outside of its daily operating hours.
Bechtel added that, as a bank lender, TD Bank can effectively partner with fintechs in order to build a customer experience that couples state-of-the-art technology with a highly specialized team of trusted advisors who have been immersed in the business for decades.
“We believe this combination is the right recipe for serving customers, and the growth of our business continues to prove that,” Bechtel said. One of the biggest differentiators that have pushed traditional lenders to take quick steps towards digitization is the advent of the smartphone. Today, most lenders have mobile apps that allow customers to not only carry out their banking transactions online but also apply for a mortgage or refinance loan. Giving the example of its app, John Schleck, SVP of Centralized and Online Consumer Lending for Bank of America, said that the bank has built an integrated mobile app that also allows consumers to apply for mortgages or home equity financing at the press of a button.
“A few years ago, you probably didn’t think about how you were going to use your smartphone to deposit a check,” Schleck said. “Today, we deposit more than 12 million checks a month using this method. We tried to bring some of that experience and ease to the mortgage experience through the app.” That app has been designed so that a borrower can start the process online and have the option of filling it at their own pace.
The bank’s app also pre-populates most of the information so that the customer needs to fill only about 10 fields, Schleck explained adding that a customer can also import assets and allow the bank to get their income and work verified at the click of a button.
Digitization has become a necessity as more and more lenders adapt to changing consumer preferences. “Clients have more information than ever before at their disposal, in large part due to technology capabilities, and they know what they want and what they should expect,” said Sherry Graziano, SVP, Mortgage Transformation Officer at SunTrust.
“Clients want 24/7 access to their loans, real-time updates, digital signing capabilities, auto form completion across platforms, and intuitive tools. They want the ability to be 100% in control and the opportunity to be 100% led through the process with the ability to toggle back and forth as needed seamlessly.”
Technology has also benefited other stakeholders in lending.
“When used in the right way, technology can lower the lender’s cost, give customers a better experience, and provide investors with a higher quality loan file,” said Colin McCormick, Head of Product and Innovation for Chase Home Lending. “With all the key stakeholders seeing a benefit, we see the trend of increasing technology in the industry continuing.”
“We’ve seen that when borrowers fill out their own forms and upload their documents online, it reduces information intake time by more than 60% on average. That’s good for our call centers, for our loan officers, and for our customers,” Bechtel said. “It allows our loan officers to spend more of their time providing expert guidance to homebuyers, which is a cornerstone of our value proposition as a lender.”
Graziano stressed on the importance of having the right tech tools to help lenders streamline their processes.
“At some point, every company must ask themselves, ‘How can we become more efficient?’ By imple
menting the right tool in the right stage of the journey, lenders can reduce cycle times, deliver better client experience, and improve efficiency,” she said. She provided the example of SmartGUIDE, a point-of-sale platform introduced by SunTrust that allows clients to upload documentation and complete their mortgage application digitally, cutting down the application time in half.
But why only the loan process? Technology is creeping into the business of homebuying and selling too. Fintech startups like Opendoor and Offerpad are looking at partnering with consumers, whether it’s first-time buyers or homesellers, from the time they decide to buy a home right up to the point they actually own one. In fact, iBuyers—real estate companies that buy homes from sellers who sign up online by making an offer after receiving a description of the property from the seller—are looking to become one-stop shops for buyers’ needs.
The Rise of iBuyers
iBuying is often mistaken for just another version of homeflipping. Real estate consultant Victor Lund noted in a recent report by Curbed that the service provided by iBuyers “boils down to a financing instrument. The companies essentially extend a line of credit to a homebuyer using the existing property as the collateral. Customers then use that line of credit to buy a home.”
Today, the use of technology has made it easier for iBuyers to consolidate and expand operations. Opendoor, for instance, not only buys and sells homes but has also launched a home loan business and partnered with homebuilders so that it can provide “an end-toend experience where you can buy, sell, or trade-in a home in just a few clicks.”
According to Nadia Aziz, Head of Opendoor Home Loans, “We are rebuilding every component of the real estate transaction to make it automated, frictionless, and low cost. We’ve invested heavily in technology and are working every day to make the transaction faster and easier. We’ve developed a world-class pricing model that leverages machine learning and advanced algorithms to ensure sellers and buyers get the most accurate price possible for their home.”
Another giant in the iBuyer space, Zillow is also using technology to give buyers and sellers an easier, more streamlined way to buy or sell a home. The company, which began as a real estate brokerage firm, has now expanded its business to not only include iBuying but mortgage operations as well. Its iBuying business, which is conducted under Zillow Offers, helps buyers and sellers to streamline their way to buying and selling a home. “Zillow is already the starting point for many Americans’ home shopping experience, and we have built incredible consumer trust over the past decade. No matter how someone ends up selling their home, Zillow can help,” the company’s spokesperson told MReport.
“Selling a home is stressful and Zillow research shows potential sellers want an option for a quicker, more certain sale, especially if they’re trying to simultaneously buy and sell, which 61% of sellers are. Zillow Offers is providing that option for consumers, all with the magic of essentially pressing a button.”
Offerpad, another iBuyer, lists tech and industry expertise to “provide homeowners with fast and accurate home valuations in 24 hours when they request a home offer online or in our mobile app.” The company’s internal tech integrations allow it to work quickly and efficiently and, therefore, serve the customer better.
“We are also developing additional real estate tech solutions that give consumers better experiences in all aspects of real estate like buying, moving, home loans, and much more,” said David Stephan, Communications Manager at Offerpad.
The Elephant in the Room
Amazon had created a stir in 2017 when it attempted to hire Realtors through its site. However, Amazon told the Wall Street Journal that it isn’t interested in selling real estate—at least for now, which explains its current partnership with Realogy. The turnkey initiative is likely to compete directly with Zillow’s Premier Agent program, which drew $898 million in revenue for the company last year.
For now, Amazon seems content with providing its move-in ready tech products like smart home devices and other move-in services.
“Customers can be overwhelmed when moving, and we’re excited to be working with Realogy to offer homebuyers a simplified way to settle into a new home,” said Pat Bigatel, Director of Amazon Home Services in a statement when the companies announced their partnership. “The Amazon Move-In Benefit will enable homebuyers to adapt the offering to their needs—from help assembling furniture to assisting with the smart home device set up, to a deep clean, and more.”
Yet, the industry is working towards meeting this competition head-on.
“There’s been a rumor for quite some time that Amazon may enter the mortgage space. If Amazon does enter, we welcome that and hope to work with them,” Garg told MReport. “It’s less about competition and more about combining assets as partners, the way we did with Ally earlier this year.”
For fintech lenders like Haus. com, it is through a commitment to automating and streamlining every aspect of the homebuying process that they hope to stand out.
“Haus is innovating around the entire homeownership experience when other companies might only consider financing, which is just a small piece of the equation. We’ll compete by offering the best possible homeownership solution and a consumer-first experience,” McNulty said. Companies like Opendoor are looking at similar solutions. According to Aziz, Opendoor’s vision of becoming an end-to-end real estate platform is the big differentiating factor that allows it to compete in an already crowded market.
“This is our north star, and if we continue to deliver a superior experience at the lowest cost, we see a world in which Opendoor is the first choice for consumers no matter what their real estate needs are,” she said.
“Getting into this business, we knew there would be companies—big and small, existing and new—that would advertise services like ours,” Stephan said. “Part of our growth over four years has been the enhancement of our core offering, as well as the expansion into new product offerings that help a broader body of consumers enjoy excellent real estate experiences.”
For traditional lenders like loanDepot, a laser-focus on what consumers want and need will be a huge differentiating factor.
“It’s more important to stay ahead of consumer demand than worry about the competition,” Richards pointed out. “However, competition is healthy, so we should welcome it.”
Graziano agreed. “Our discovery process is a continuum, where our clients’ needs and expectations will continue to evolve. We must be in a position to recognize their changing desire early on and respond to it,” she said. “Because ultimately, it’s not about us—we are hyper-focused on delivering what our clients want and need, and delivering that experience in the best possible way to remain relevant in the marketplace.”
The customer experience, in fact, is and will remain at the center of all the technological innovations that the market is seeing today.
The Big Differentiator
TD Bank recently conducted a survey of more than 1,800 American homeowners about the mortgage process and found that a significant knowledge gap exists regarding mortgage terms and concepts. The survey revealed that 14% of respondents said that confidence in understanding how to navigate mortgage financing most negatively impacted their most recent home purchasing decision. Nearly a third (30%) said they incurred $2,000 or more in unexpected charges.
“This should never be the case,” Bechtel said. “It’s up to loan officers to translate their expertise into understandable discussions with borrowers. This is how lenders earn trust, create transparency, and deliver an exemplary customer experience.”
McCormick pointed out that, though many fintechs were using digital tools to enhance customer experience, only a few are focused on these exclusively.
“Digital tools can make the process simpler and faster, enabling enhanced customer experience. Most fintechs recognize this,” he said. “We have seen that few are focused on exclusively digital solutions. Instead, most are trying to enhance the experience by combining people with technology in the right way.”
Bechtel agreed. “Trust is a killer app. For so many people, purchasing a home is one of the most significant financial decisions they will encounter in their lifetime. They want to understand the process, discuss all of their options, and have their questions answered. Humans still want to talk to humans,” he said. “As our investments in technology rise up to meet the ease-of-use provided by today’s most innovative lenders, our expertise will continue to differentiate us. We believe this is a winning model.”
“While clients expect digital solutions, they aren’t willing to forfeit the experts. It’s not one or the other—it’s both. Clients want the ability to be fully in control of their mortgage and fully supported as well,” Graziano said. “Some clients might expect 90% digital and 10% human interaction; others might expect 20% digital and 80% human interaction. Industry data has shown that most clients, including millennials, want human interactions at some point in the process. We feel that a hybrid approach best serves our clients— giving them the power of choice.”
Bank of America, Schleck said, was trying to marry high-tech with high-touch to enhance the consumer experience.
“At any time, when you want a little more specialization and a little more help that you might not get on the digital app, we’ve got the option for consumers to talk to somebody face-to-face in one of our, 4,400 financial centers across the country.”
According to Richards, a personalized digital experience is what will make consumers stick in a highly competitive market.
“If our industry continues to approach customer service with the notion that we should treat others as we want to be treated, we’re in trouble because we only know what we know,” she said. “Instead our focus should be on how they wan to be treated. We need to give our customers what they are used to getting in every other aspect of their lives by offering them a personalized digital experience.”
Garg believes that fintechs walk the fine line between confusing a number with a person. “One thing a fintech mortgage player should keep in mind is to treat all prospective and existing clients as people. Companies are here to serve the consumer, we at Better.com value consumer experience and opinion. The human aspect will always be part of the mortgage industry,” he said.