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Zillow and Credit Karma Move Deeper Into Mortgages

A couple of acquisition announcements in the mortgage space worth noting.

Zillow Acquires Mortgage Lenders of America

Zillow acquired Mortgage Lenders of America, a privately held online lender based in Kansas. According to TechCrunch, "MLA will continue to operate as usual and will continue to appear in Zillow’s existing mortgage marketplace, which isn’t going away." Zillow's announcement pointed out that "Owning a mortgage lender will allow Zillow to develop new tools and partnership opportunities, including for real estate brokers with existing in-house mortgage operations or mortgage affiliates.”

Zillow has done an amazing job of driving traffic to its site among home shoppers. Advertising is a tough business (and business model), though, and Zillow’s acquisition of MLA is a move towards finding new ways to monetize the site traffic. It’s a pretty risky move—they’re sure to tick of some of the big lenders who advertise on the site today. But those advertisers won’t stop advertising just yet—they can’t afford to (yet). Two questions here:

  1. In the short term, can Zillow be like Amazon? Amazon sells Amazon-branded products like the Kindle and Fire phone, which compete with other products for sale on Amazon’s platform. Amazon doesn’t push its branded products at the expense of competitive offerings, however.
  2. In the longer term, can Zillow make the business model shift seamlessly? The MLA acquisition shouldn't be a surprise--the company buys and sells homes through its Zillow Offers program, so adding MLA helps close the loop for buyers using the program. The challenge for Zillow will be making that transition in business model.

Credit Karma Acquires Approved

Credit Karma announced that it was acquiring Approved, a mortgage platform servicing banks and mortgage brokers. The acquisition is expected to bolster the mortgage brokerage services Credit Karma already offers. According to Credit Karma's Chief Product Officer, the company "has been working on getting deeper into the mortgage business for about 18 months--the acquisition is just the continuing effort of saying we’re serious about taking our scale and being that trusted destination for our members as it relates to helping them with their mortgage."

The Credit Karma acquisition shouldn't surprise anyone--the firm has offered mortgage brokerage services for sometime now, and follows on the firm's acquisition of chatbot app Penny in March 2018. With an advice tool to guide Credit Karma members to the right mortgage, the Approved acquisition helps speed up the process. A classic example of vertical integration. Unlike the Zillow acquisition, however, there's no business model conflict wit the Credit Karma acquisition.

The Impact on Banks and Credit Unions

There's no question that consumers are demonstrating a preference for a streamlined digital experience--a trend that's been happening for 10 years (or more--see chart below). The real story here is about vertical integration and business model change.

So what's the impact on banks and credit unions? The answer to that question depends on your perspective on things. One of my colleagues told me of a bank CEO who said, during a strategic planning three or four years ago, “We really don’t see Quicken Loans in our market.”

Literally speaking, no one sees Quicken Loans in their market. But they're there. According to iEmergent (using HMDA data), Quicken Loans was the top mortgage originator in 2016, though.

In a recent Quicken press release, the firm said that in Q1 2018 it had:

"Extended its lead as America’s largest mortgage lender, originating $20.5 billion in home loan volume during the 1st quarter of 2018, marking the second consecutive quarter the Motown mortgage lender has topped the list of more than 30,000 lenders nationwide."

According to Cornerstone Senior Director Sam Kilmer:

"Banks buy into the false narrative that people want to come into a branch and visit with a human for big, complex financial decisions. All bankers look at is cost and competition. Some increasingly look at relationship value, but almost nobody seems to get their brain around the perceived value of convenience and how to arm a marketing function to drive leads off selling VALUE. Quicken Loans gets it--they make it easy, and they promote easy. Use mobile app, call center, direct marketing, and even mass media advertising to drive leads. Respond instantaneously telling people you care. And close the business."

Bottom line: From a bank or credit union perspective, the Zillow and Credit Karma deals aren't really about digital origination. They're about customer acquisition, and the monetization of the lead. The big banks advertising on Zillow today will ultimately look for other sources of applicants as Zillow increasingly competes for the business. Credit Karma just set itself up as a logical place for those institutions to turn to.

Ron Shevlin
Director of Research
Cornerstone Advisors

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