We recently spent $26,000 on a new “point of sale” platform (Blend) to make it even easier for our borrowers to apply online.
This was a lot for us as a small business, but it is nothing compared to the $80 million that Loan Depot spent to develop their online application and related technology.
But, here’s the thing – Blend spent way more than $80 million to develop their app and they are fighting tooth and nail for market share and improving constantly.
This is why I think companies are crazy to develop technology internally; third-party firms spend millions themselves and b/c they have to compete with other firms, they are forced to stay ahead of the curve.
All this technology may be for naught in any case b/c only “one in five borrowers is willing to apply for a mortgage online,” according to this National Mortgage News article.
The article’s title is “Will Amazon Create Prime Competition for Mortgage Lenders?”
The answer to that title is … probably, but not for a while.
In addition, firms like JVM have little reason to be worried about Amazon.
WHAT IS DELAYING AMAZON’S ENTRY?
It is not easy to become a full-fledged mortgage company b/c there are so many licensing, auditing and regulatory issues. Amazon could simply buy another mortgage company, but that too would take time and there are substantial risks involved with an acquisition too.
BUYERS HAVE QUESTIONS
Our single biggest cost at JVM is labor. And most of that labor is devoted to answering the hundreds of questions our clients have, even though we provide more up-front education than any lender I know of.
Buyers simply want and need a lot of hand-holding before they make the biggest purchase of their lives. There are already lenders who offer awesome digital mortgages, but they do not have trained advisors to answer borrower questions.
And they never will b/c it is so costly and time-consuming to hire and train people with enough talent and knowledge to answer every question a buyer might have.
REPUTATION MATTERS
A few years ago a borrower left us to get a mortgage with Costco b/c he thought he’d get a better deal. But, no seller would accept his offers with a Costco “pre-approval” letter.
By the time he did get a seller to accept his offer, the market had appreciated 5% and he ended up paying $30,000 more for a home (and he didn’t even end up with a lower rate).
In any case, I suspect buyers with “Amazon Pre-Approval Letters” will face similar problems.
The above referenced article also says that consumers are much less trusting of tech firms than they are of financial firms in general. So the likes of Amazon and Google may have tougher uphill climbs than they realize.
OTHER BIG FIRMS HAVE FAILED IN THE MORTGAGE INDUSTRY
Ford, General Electric, General Motors, H&R Block and Met Life were all in the mortgage industry at one time, lured by the ostensibly easy money. And most of them lost hundreds of millions and even billions.
Most of them got blindsided by cyclical downturns in the housing market. Amazon certainly has tech and data gathering advantages that those companies did not have, but they still face similar risks.
And that may be another reason Amazon has not jumped into the fray yet.
CONCLUSION
- Amazon will likely enter the mortgage industry at some point and they will likely garner a lot of refi business.
- Buyers like digital efficiencies but they still want smart humans to answer all of their questions.
- Mortgage companies with low rates and expert advisers have little to worry about.
Bring it Amazon! We’re ready!
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646
