Quicken Dropped a Bomb and the Mushroom Cloud is Big
Last November, U.S.-based Quicken Loans launched what may go down as one of the biggest mortgage innovations ever: The Rocket Mortgage.
In a few words, Rocket Mortgage is a fully online system that lets people apply for a mortgage and be “approved” in less than 10 minutes. In many cases, borrowers can avoid submitting documentation manually. Instead, Quicken can validate income, employment, down payment and existing mortgage status from an assortment of public and private sources and databases (Quicken must be connected to the document source to obtain the data electronically).
Here’s Quicken promoting it in Sunday’s Super Bowl ad (see if you notice any overstated macro-economic claims):
The full bearing of Rocket Mortgage is yet to be seen. But that doesn’t prevent us from asking (and answering) our own questions, like:
Will people really get a mortgage on their iPhone?
You bet, and they’ll do it successfully. But most people would rather have their chest hairs waxed than type a five-page app with their thumbs. Expect PDA-based mortgage applications to garner no more than a single-digit share of application volume for the foreseeable future. Note: We’re talking full apps here, not glorified contact forms with just your name, phone/email and a few mortgage questions.
Will mortgage originators be out of jobs?
“The Rocket Mortgage system does all the work,” said Quicken Loans Rocket Mortgage Product Lead Regis Hadiaris in a Bezinga interview. Only “occasionally” does a “real live person” review the application. So the answer is, yes, it will cost mortgage jobs, but far from all, and far from anytime soon. Full-service mortgage brokers are not going extinct. Too many consumers want personal service, too many crave guidance and recommendations, and too many don’t fit today’s tight credit boxes. Besides, direct-to-consumer lenders won’t build in objective advice about other lenders’ mortgages anyway. That’s the realm of brokers. Nevertheless, as competitors copy Quicken’s technology, a sizable swath of mortgage agents will shift from being commissioned full-service brokers to hourly information providers in call centres. Quicken says the Rocket Mortgage will actually generate more action for its Mortgage Bankers, but it has to say that. It employs thousands of mortgage reps. The key question is, how long it will take for those commissioned mortgage agents to get replaced by relatively low-cost customer service agents?
Will it fuel more rate competition?
“There is no cost to go on to Rocket Mortgage, create an account, use the system, get a solution, get approval, lock an interest rate or get a pre-approval letter,” says Hadiaris. Moreover, there’s very little HR cost per application. That makes the margins wider and this will absolutely fuel rate competition over time. Mind you, it may not happen until Quicken gets more competition. For now, it can sell Rocket Mortgage on its core benefits (speed, simplicity and convenience) and milk the higher margins of a less-human system for all it’s worth.
Will first-time buyers use it?
Quicken seems to think so. “Rocket Mortgage is for the first-time homebuyer who wants to know how much they can afford or for someone looking to refinance an existing mortgage,” says Hadiaris.
“If we show a number, we show the breakdown of how we arrived at that number. If we show a payment, we show the breakdown of the various components that make it up.”—Regis Hadiaris, Quicken Loans
Will it come to Canada?
The short answer is yes, in some shape or form, but likely not for a few years, minimum.
Rocket Mortgage is a monumental IT feat. It took 500+ software engineers, designers, etc., over three years to create. It’s got automated underwriting, a real-time multi-factor pricing model, automated document validation, credit report analysis (applicants even get their credit score while they’re waiting), immediate rate locks, instant funder approval and e-signing. That is a technology project that perhaps only our major banks could complete in the next few years. Of course, no one knows what inventive Canadians are building in their garages as we speak.
On top of that, Canadian lenders’ conservative nature makes our industry a slow adopter. e-signing, which has revolutionized U.S. mortgage closings, is but one example. Certain Canadian lenders have been painfully slow in allowing brokers to submit e-signatures. That’s despite e-signing’s proven security and authenticity, full legality, positive impact on consumer satisfaction and workflow efficiency.
U.S. online lenders like Quicken Loans, Loan Depot, SoFi and Guaranteed Rates all have a huge head start on tapping the next wave of e-savvy mortgagors. Canadian mortgage providers, some of whom still don’t have online mortgage portals for their clients, have miles left to catch up. But you can bet your basis points they will.