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You may have never thought twice about how mortgage companies generate business; I sure didn’t until I got into the business. What I learned was definitely not what I expected; what I expected was pretty simple, I always thought companies, including mortgage companies, generated business through their own marketing efforts, but that turned out not to be entirely true. In fact, it was mostly wrong.
You see, a lot of larger mortgage companies do have their own marketing departments that are charged with generating potential clients for the sales teams to speak with, but there is an entire army of mortgage brokers and small mortgage companies out there that simply don’t have the means to fund or the expertise to operate a dedicated marketing department.
Very similar to how Real Estate Agents operate, many mortgage professionals are either independent, or they work for very small companies on the order of 10-15 employees. As is the case with many smaller companies, in order to operate efficiently, they need to outsource a good portion of their business, and marketing is usually the biggest portion they outsource.
LowerMyBills and LendingTree
Unless you’ve been in a cave for the past 5 years, you’ve probably heard of LowerMyBills.com or LendingTree.com. LendingTree unleashed a whale of a marketing campaign several years ago touting the benefits of having banks compete over you, instead of the other way around. What you probably didn’t know is that these two companies don’t do anything new or revolutionary, they just happen to have a knack for marketing. Over the past several years, these two companies have become major players in the mortgage industry.
So How Does This Lead Brokerage Thing Work?
LowerMyBills and LendingTree primarily generate leads from their websites, but that’s not the only way to do it. Have you ever received telemarketing calls from mortgage companies? Well, I’m going to let you in on a little secret…some of those telemarketing calls were probably not from mortgage companies, but lead brokers. Just about any way you can think of to gather a potential borrower’s information has been attempted by lead brokers with varying degrees of success.
I’ll use the internet brokers to explain in more detail how this works. Let’s say I’m a mortgage broker who doesn’t know much about marketing or doesn’t have the resources or desire to create an internal marketing department. I may go sign a contract with LowerMyBills to receive, say, 20 leads per day. Depending on what lead broker I’m dealing with I can make stipulations as to what types of leads I wish to receive. For instance, I can usually specify that I only want leads from borrowers with credit scores over 700, or loan amounts over $200,000, or Loan-to-value below 80%, and so on.
So, when Mr. Homeowner submits an application at LowerMyBills, and the information on that application meets my qualification requirements, Mr. Homeowner’s information is automatically sent to me and 4-5 other mortgage companies (or at least that’s what they claim - in reality Mr. Homeowner will probably receive several dozen calls from different mortgage companies as a result of submitting that one application online - where all those calls come from I can only speculate on).
Now, as a mortgage broker, every time LowerMyBills sends me one of these leads they charge my account somewhere in the realm of $50-80, depending on the information submitted with the application. Let me repeat that so there’s no confusion; a lead broker like LowerMyBills will generally sell your information to 4-5 other companies (at least) at $50-$80 a pop! So, every company that calls you paid that amount just to be able to make an attempt at getting in touch with you and earning your business; but since each lead is generally sold to 4 or 5 companies, a single LowerMyBills application may generate $200-$400 in revenue for LowerMyBills. So, there’s obviously big money in the lead brokering business, but expenses for such companies are surprisingly high, so many lead brokers are also mortgage companies themselves. I’m not sure about LowerMyBills, but LendingTree is an example of such a lead broker/lender hybrid.
Are Lead Brokers Good or Bad?
Lead brokering is, I’m sure, a tough business, but to be quite honest with you I’ve never done business with a single one, not one, that I would do business with again. I’ve also yet to meet another mortgage professional who feels differently than I do, but to be fair, I’m sure someone is having a good experience with his or her lead company (seriously, there has to be someone).
As a mortgage professional I haven’t found a lead broker that’s worth doing business with, and knowing what I know about lead brokers, I wouldn’t do business with a lead broker as a homeowner either.
The problem with lead brokers from a home-owner’s standpoint is three fold. First of all, as a home-owner you don’t have any idea who is actually going to call you. You may submit a loan application through LowerMyBills.com, but you won’t know anything about the companies that call to earn your business.
Second of all, there is little, if any, screening process involved when a mortgage company signs up to purchase leads from a lead broker; even if there were a screening process, it would be nearly impossible to implement effectively. There is simply no reliable way to screen out unethical mortgage companies. Even if the lead broker wanted to do this, how would he find out who’s ethical and who’s unethical? There’s no objective source of that kind of information. So, even though you submit an application through a website you may believe to be a good resource or a site you’ve heard great things about, you could still end up speaking to a scam artist on the other end of the phone, and there is next to nothing done to prevent this from happening.
Third, you really have no idea what’s happening with the information you submit. Some lead brokers will keep the best leads for themselves and sell the rest. Well, if you submitted your application under the impression that you’d be having banks compete over you, you may be sorely disappointed when, and/or if, you ever realize those were false pretenses. Also, you will receive more phone calls than you anticipated, even if you read all the fine print when you submitted your application. I wrote an article about why you may receive more mortgage and refinance phone calls than anticipated; however, what I didn’t mention in that article is that there is quite a bit of fraud going on. Your information will find its way to quite a few more mortgage companies than the 4 or 5 originally promised by the lead broker. There’s no way to know exactly who is committing the fraud, be it the lead broker higher-ups, or just some disgruntled employee, but I’ve purchased leads from various lead brokers in the past, and I could count on one hand the number of people who had not been contacted by double or triple the number of companies they were supposed to have been contacted by.
Conclusion
Unfortunately, the mortgage business is full of shady people; hopefully that will start to change with the changing market conditions, but even major companies will conceal the truth a bit, so working with name-brand lenders won’t necessarily protect you. If you’re looking for a company to do business with, follow this link for some mortgage shopping articles I’ve written. If after you read those, you’re still not sure what to do, follow this link to get in touch with me and I’d be happy to offer some advice or take a look at your current offer to see if it’s a good one.
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