The three-front housing and fintech war of 2020

By Housing News

Customer acquisition, instant loan approvals and home valuations are a three-front war for housing dominance in 2020. As a lender, you must win all three or you lose. 

Julian Hebron, Columnist

Acquisition is a battle for customer service and compensation, instant approval is a battle for customer experience, and home valuation is a battle for lifetime customer retention. 

The winners will remember that consumers don’t care about our business model nuances. They only care if we can make home searching, buying, improving, and selling as easy as browsing and binging Netflix. Let’s dive into some battle plans.

Warfront 1: Lifetime Customer Acquisition

The root of this battle is about who gets the customer acquisition money. 

Both retail (bank and nonbank) and broker models can allocate as much as 150 basis points to LOs to attract and retain customers. LOs make great money and give customers informed advice and lots of attention to offset any hiccups in a process that’s been hard to fully automate.

Consumer direct models can allocate as little as 10 basis points to centralized customer service teams. Compared to the retail and broker models, this leaves a pile of basis points to make it rain customers on those lower-paid service teams, give customers tech tools to quicken the process, and lower pricing to offset any inexperienced service shortfalls. 

Retail and broker customer acquisition is still mostly about realtor partnerships and local community involvement, but maturing marketing technology is helping LOs improve their social, SEO and other digital tactics. 

Success stories to date are retail and broker super producers with teams using the direct playbook. They run meaningful social, SEO, SEM budgets; media platforms focused on product niches; lead aggregator buys; and mini response/conversion teams modeled after scale call centers.

Marketing operating system (MOS) software is still pretty bifurcated to serve retail/broker or direct models with different functionalities, but 2020 will be the year MOS leaders mature to serve both retail/broker and direct models.

This will enable retail and broker LOs funding at least $30 million a year to use the same tactics as scale direct shops. The marketing tech enables smaller producers to do it too, but $30 million is when you get serious about doing more than combing your book for refis, calling on realtors, and chatting up folks at your kid’s ballgame.

Now, about that money. 

Ask a top-producing retail or broker LO who’s successfully built their own direct-like model, and they’ll tell you marketing cost lowers their net basis points, but volume and dollars earned are higher.

These top LOs have stopped fighting a battle for the highest basis points per deal, and built their own marketing machines. 

They’ve also replaced phrases like customer acquisition and funnel marketing with customer experience and lifetime engagement. 

More on this in Warfronts 2 and 3 below.   

Warfront 2: Instant Loan Approvals

The root of this battle is about who controls the loan approval process – which goes to marketing, message and money. 

We’re closer than most think on instant pre-approvals for most U.S. borrower profiles. 

I was on the human side of this battle for years. Most of my production success came from building technical teams doing underwriter-quality pre-approvals on the country’s most complex borrowers and properties. Control of the process was our competitive advantage, so we acquired more customers, and made more money.

But this is less true every quarter as technology rapidly replaces manual analytics.   

Most customers simply don’t care how smart and hard you’re working. They found a home and want to close immediately. Your (or a competitor’s) instant approval technology on customers’ phones will keep raising this expectation.

If you accept this instant approval trend, you’ll spend less time running process and more time advising your pipeline and acquiring new customers.  

Now, about that “instant” approval. 

Don’t get all religious about how comprehensive it is or isn’t. That’s not the point. The point is that the process is increasingly self-serve. 

One day, closing on a home will be as easy as ordering bedside tables on Amazon. 

Until then, your customer is engaging with your experience on their phone as much or more than they’re engaging with you directly. 

That’s why the point of sale (POS) moniker is outdated. 

The consumer-facing tech stack is your POS and MOS, and these will merge into single customer experience systems in the next 2-5 years.

These customer experience systems will support customer acquisition through transaction for mortgage and other banking products. 

But in housing (as opposed to broader banking), there is one more critical element that brings it all home. 

Warfront 3: Actionable Home Valuations

The root of this battle is about who controls home valuations — which goes to customer lifetime engagement and systemic safety.

Reliably automating home valuations replaces a 2-3 week human appraisal process with instant, actionable valuation at a fraction of the price. Customers getting mortgages and institutions buying and making mortgages demand this, and it can be done for 70% of the U.S. market today. 

Don’t get stuck on whether you agree with these demands. It’s only about evolving to meet the demands while keeping the system safe.

Once we accept this, it gets exciting. 

What if valuation was the driver of your customer’s entire homeownership lifecycle?

Today, people can search for homes or check their home’s value on countless sites. But these sites exist to poach your customers, and customers can’t make buying or home equity/cash out decisions based on those values.

In fact, inaccurate values make your lending job harder. 

Instead, you should provide branded sites and apps where buyers can find homes, owners can model home improvements or sale scenarios, the values are within 2-3% accuracy, you can see customer activity in your MOS, and customers can take action using your integrated POS.

This is how we must define lifetime customer engagement in 2020. 

Now, about that systemic safety. 

Humans are still the superior appraisers for 30% of the U.S. market, but automation is proving more robust on the rest of the market. 

The best appraisers will increasingly become the brains behind automation. 

This combined brainpower and automation can protect the system better than a human-only model. 

Plus it enables real-time, lifetime customer engagement. 

That’s why we should push for the home valuation category to evolve into the customer engagement platform category in 2020. 

Good luck on your three-front battle plans this year. 


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