Amazon in the Mortgage JungleBy Rob Chrisman,
Rob Chrisman's Perspectives
What company makes the news when it lowers the price of its Ring Video doorbell? What company partnered with Lennar to install multiple Echo microphones into new housing together with Alexa-controlled light switches, thermostats and even door locks? What company just paid $250 million for the rights to, and will probably spend $1 billion on the production of, bringing “Lord of the Rings” books to television? If you answered “Amazon” to any of these questions, congrats. But if you’re going to be “amazoned” (yes, a slang verb meaning “crushed”), there are no congrats, just condolences.
There are plenty of rumors, and concerns from existing residential lenders, that Amazon is researching entering the residential mortgage space. If you doubt their interest in financial services, remember that it has created a checking product with JP Morgan. And rumors abound of Amazon searching or hiring someone to lead its mortgage division and recruiting additional industry talent from top lenders. Quicken or loanDepot jump to mind due to their Direct to Consumer (DTC) lending platforms. Or would Amazon work to create a multi-lender platform, similar to the way they offer other options to consumers with Amazon labeled products alongside large brand names and upstart new providers? So, is Amazon seeking to become a true end-to-end mortgage lender, or create a platform for lenders similar to what Zillow and LendingTree have done?
Residential lending veterans are quick to point out that it is one thing for a lender to incorporate new technology into their origination processes, but entirely different for a “tech” company to grasp mortgage originations and borrower psychology. Yes, this is true, but it seems to be an exercise in “denial” to think that Amazon doesn’t grasp consumer psychology. Arguably, Amazon is today the greatest consumer marketing company on the planet. So, if you’re a going concern as a lender and your eyes are wide-open, you’ve got to be thinking — and worrying — about how Amazon can “disrupt” mortgage lending as we know it.
As if to discourage Amazon from a direct entry into the mortgage space, lending veterans are pointing out that, at the current time, industry growth is slim at best, margins tight, regulations burdensome and underwriting guidelines always in flux. But on the plus side, mortgage lending is, by some measures, the country’s largest financial service; and one in which there is no monolithic industry titan, no monopoly, no clearly dominant player. Sure, Wells Fargo is the correspondent to beat, United Wholesale is number one in wholesale, and Quicken Loans is a Consumer Direct powerhouse. But HMDA data includes information on over 6,000 lenders in 2016 – so there is plenty of opportunity to steal market share, i.e., plenty of low-hanging fruit for Amazon to pluck. In other words, there are no insurmountable barriers to entry facing Amazon, whether it builds a mortgage company from scratch or elects to acquire an existing firm.
And let’s not forget the data that every borrower gives to the lender during the home loan process. That data has real value, and Amazon, unlike most residential lenders – especially those that aren’t banks — knows how to use it for its own benefit. Is the new crop of borrowers – those in their 20s and 30s – okay with Amazon knowing their bank account numbers, where they shop by debit card transactions, balance sheet, where they work and who for along with all their income and its sources? Probably. Remember, this is the same age cohort that would trust a bank formed by Apple more than the traditional banks that have been around since the 1800s.
How might an Amazon Mortgage operate? And what competitive advantages might Amazon Mortgage have? As to the first question, it seems almost a given that if they choose to be an end-to-end lender, they will operate as a DTC lender. But if anyone can see a reason why Amazon would want to operate bricks and mortar branches or deal with brokers, let me know. I’m all ears.
As to potential competitive advantages should Amazon choose to operate as a DTC lender, how about:
1. Providing Amazon Mortgage borrowers with a free Life-of-Mortgage Amazon Prime Membership (which includes Netflix-like streaming video plus free 2-day guaranteed delivery on most products available on Amazon.com).
2. Providing Amazon Mortgage borrowers with a free voice-activated Amazon Echo gift at closing by which borrowers can ask Alexa to pay their mortgage, check their loan balance, check rates, etc. Amazon is already doing this with Quicken’s Rocket Mortgage. Keep in mind here that when put into a consumer household along with Amazon Prime membership, the spend on Amazon.com increases substantially, not to mention the fact that new mortgage borrowers purchasing a home or doing a cash-out refinance to fund home improvements are big spenders and likely a major target market for Amazon.com.
3. Guaranteed 2-day closing with Amazon Prime Mortgage (just kidding, but who knows…).
4. Offering Amazon Prime Mortgage borrowers a special credit card, e.g., “The Amazon HouseCard,” that includes automatic real-time discounts on appliances, furniture, kitchenware, lighting, bath ware, bedding, hardware, electronics etc. for a 12-24-month period following closing which, as noted above, is when home buyers and improvers are big spenders.
5. An Amazon version of Welcome Wagon delivered via Whole Foods in markets where Whole Foods operates.
6. Selling Whole Loans at Whole Foods checkout line six (again, just kidding).
As to Amazon operating a Zillow or Lending Tree-like platform, let’s not forget that Costco offers mortgage products tied to partnerships with smaller lenders. And so, the talk about Amazon entering mortgage lending continues to turn back to a partnership with one or more financial institutions rather than starting something from scratch. But this may be wishful thinking because few would disagree that if Amazon wanted to, it could probably dominate the industry with one eye on regulations and the other on providing top-flight customer service combined with the synergies and marketing tactics cited above. In a relatively short amount of time, Amazon has become an iconic brand that currently is both trusted and admired by a huge customer base.
Finally, let’s not forget the possibility of a game-changing acquisition. Does the thought of Amazon acquiring Quicken Loans frighten anyone?