STRATMOR: Seismic Shifts In Real Estate Industry Will Have Profound Implications For Lenders In Purchase Markets

In its July Insights Report, STRATMOR Group shows how a likely upcoming surge in purchase business will be unlike previous purchase money markets and why it won’t benefit all lenders equally.

“The real estate industry is on the brink of a [dramatic] transformation within the next six to twelve months,” says Senior Partner Garth Graham in “How to Win the Coming Battle for the Purchase Money Market,” his second article in a two-part series.

A primary catalyst for this transformation is the ongoing legal battle between major real estate companies and the Department of Justice (DOJ) over consumer disclosures regarding buyer’s agents. These changes are poised to significantly impact how real estate agents and lenders interact, according to Graham.

Real estate agents are far and away the leading source of new purchase money mortgage business for lenders, but that dynamic is changing quickly, Graham says. “Most have traditionally waited for their business referral partners to bring them the deal. But that may not work in the future,” he explains.

Graham’s analysis underscores the urgent need for lenders to reevaluate their business models and strategic direction in light of these transformative changes. “Most lenders don’t have sales teams made up of enough loan officers to directly generate purchase money business from consumers in a significant way,” he says.

In addition, consumers have been shopping for homes online, touring virtually and making decisions about their next home online on their own for a while now. “The future of real estate could look more like Airbnb,” says Graham, “where a prospect finds a home on any of the online search engines, texts the listing agent for a code to the front door, and tours the house themselves, under video surveillance, of course.”

Rather than relying on business referral relationships to bring lenders their share of the coming wave of new purchase-money business, Graham gives a number of concrete recommendations, including:

• Invest in a completely seamless online loan application. Listing agents will be dealing with consumers who have found homes online and they are likely to start that relationship online and keep it there (or in the call center) as long as possible. A frictionless online application will attract tech-savvy consumers and compete for business from listing agents.
• Power up your lead generation. Lenders with a servicing operation have a tremendous advantage as they have an existing database of customers. Those who don’t will need to put their marketing machines into high gear or hire loan officers who can build relationships with listing agents. Savvy lenders will leverage data analytics and marketing automation to identify and convert potential borrowers.

By proactively addressing the challenges associated with a transformed real estate industry, lenders can not only survive but thrive, Graham advises. Lenders must act now to position themselves for the future.

“The mortgage business is facing unprecedented changes in response to the significant shifts on the real estate side,” says Graham. “While it’s impossible to know the exact impact, one thing is certain: lenders who fail to prepare for some kind of change risk jeopardizing their business.”