A session on lead management tried to define “incubation”. We agreed that incubation was required to take cold Internet leads and warm them up for distribution to loan officers and real estate agents. All the talk about “incubation” brought chickens to mind. Are leads like chicken eggs? Is the maturing of the lead (egg) is inevitable? Is the lender’s challenge to stay engaged with the prospect and be present when the lead becomes a prospect? Alternatively, does the lender or Realtor® play a role in helping the lead mature through careful attention? The session concluded that Realtors® and lenders have no influence over the timing of an individual homebuyer’s cycle. At least that it was uneconomical to try accelerating incubation. Here are the possibilities that emerged.

• Warmth is required for incubation but will not affect the hatch date.
• Incubation happens regardless of broker attention.
• Warmth and occasional turning the egg (engaging the prospect) affects the hatch date.

Equinox continues to invest in customer acquisition solutions on the basis that detecting the timing is critical. We believe that knowing when the prospect enters the buy zone is the most important contribution we can make to lenders. This allows lenders to focus their costly call center resources in a narrow and productive time window. It also shields lenders from customer ire that builds when solicitations are too early, or too late. Equinox’s SmartAcquisition service alerts lenders when their leads become prospects, and detect when borrowers become runoff and pre-pay risks, and are ready for their next loan.

A session on banks in real estate asked who “owns” the homebuyer. There is an odd paradox. The loan servicer sends out a bill each month during the life of the loan. But in the home buying relationship, it is only the Realtor® who has a real relationship with the borrower. Mortgage servicers claim to be engaged with borrowers as they bill and collect each month. This is regular, but is it a cold “bill and envelope” engagement, so why do borrowers use a competitor for 97% of their purchase loans? Borrower relationships are closest with the real estate agent. The agent does the hard work of finding the customer and then persuading them to buy a home. In fact, really the Realtor® who persuades the buyer to take on debt. So, the agent is really selling both a house and a loan. Lenders and mortgage brokers are just competing to find that ready prospect. Realtors® are memorable, loan officers are not. Moreover, direct payment of the loan makes the lender-servicer even more distant. So, who “owns” the prospective homebuyer? In between home sales, the answer is no one! Once the prospective homebuyer enters the buy zone and starts looking for a house, the real estate agent has control.

Consumers may benefit because lending and brokerage are separate businesses. However, RESPA’s clumsy structure hurts the consumer when lenders have to spend independently to find the same customer that a Realtor® has just captured. If Realtors® could refer customers to lenders would all parties benefit? Can anyone make the credible claim that competition for borrowers is anything less than intense? And could we wring $1,000 in costs out of each loan if referrals were NOT prohibited? If Realtors® pocketed a $300 referral fee, could we cut the average borrower acquisition cost down from the current $1500 figure? I forecast that technology and new lead generation ventures will moot the ‘no-referral” provisions of RESPA – to the benefit of all parties.

A session at the conference covered the woes of Fannie and Freddie and asked if separating origination from the secondary market adds costs. Perhaps as much as $1,000 per loan for the move up buyer? While the secondary market’s liquidity liberates lenders and lets them limit their risk and focus on marketing and origination, the separation of origination from debt ownership makes retention impossible. Borrowers are not really the lenders’ customer, except for a brief period around the transaction. Instead, they are customers of the debt holders. Only loans held in portfolio could be “modified” to a new address to retain the borrower when they move. The secondary market makes purchase retention impossible because a lender cannot retain a customer that is not theirs. Consider the servicer with perfect information on a borrower with a perfect payment record. The lender still has to undertake high octane due diligence as if the borrower is a new customer. When a lender-servicer orders a credit report on its own customer, is that like a consultant who borrowers your watch to tell the time? Past may not always be prologue in history, but in mortgage payments, past is the best prologue we have.

Certainly, the dominance of mortgage brokers in customer acquisition may also contribute to low retention rates. After the end of the latest refi boom, I heard a lender say, “Never again will we buy our customers back again and again from mortgage brokers”. During the refi boom, it gnawed at lenders that they bought their own customers from mortgage brokers sometimes two or three times. But every day, lenders buy back their customers from mortgage brokers. In truth, most lenders are wholesale players as they have mostly ceded the retail lending market – 70% of loans come through independent mortgage brokers.

Will RESPA be mooted by technology? Does the secondary market drive up lending costs? What is incubation? Equinox understands these questions and the nuances of mortgage lending. Equinox specializes in innovative customer acquisition and back office processing for the US mortgage lenders.