Saturday, August 04, 2007

10 Ways the Credit Crunch will Change Mortgage Lead Generation

Overnight, the residential mortgage industry is in a real crisis, the first days of what may be an extended and painful credit crunch. American Home Mortgage, my employer of 10 years, collapsed with incredible speed last week, when the entire secondary market for our products evaporated. BlownMortgage has a good summary of all that happened on Friday.

An entertaining highlight from the day was Jim Cramer freaking out on air, announcing "armageddon" and railing against Fed Chair Ben Bernanke and " We won't rescue the markets" Fed President Bill Poole, pleading with them to drop the Fed funds rate at the FOMC meeting next week.

The gist of it:

- Rates are shooting up: Despite the fact that Treasury bonds are down and may continue to drop, residential mortgage rates will not. Generally speaking, the spread between mortgage rates and Treasury bonds has increased markedly because mortgages are now seen as riskier and have been repriced to reflect that increased risk.

- Products are being eliminated, guidelines are being modified daily by lenders, with wholesale and correspondent channels sometimes getting whacked harder than retail.

- The non-bank mortgage lender who relies on warehouse lines of credit to fund its loans, and a secondary market to purchase them, may no longer be a stable business model, suggests investment bank Keefe, Bruyette & Woods.


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Considering these events, I took a stab at identifying 10 ways they will immediately change mortgage lead generation:

1. Increased filtering restrictions from lenders
2. Increased % of unsold or undersold leads
3. Reduced overall refinance lead buying
4. Increased demand for purchase leads
5. Increased demand from consumers for unrealistic product and price(time to rethink the call to action and advertising copy).
6. Publisher/advertiser relationships may need revision.
7. Significantly decreased conversion rates across the board for lenders as borrowers expectations or requirements are not met.
8. Increased importance of income and debt ratio information
9. Need for LTV validation to be developed and improved
10. Vendors start requiring Countrywide, QuickenLoans and others to prepay ;-)

The world has changed, how have you?

2 comments:

stockTagger said...

This almost captures the hilarity of Cramer MSFT recommendations in the summer of '06 here: http://www.stocktagger.com/2007/07/jim-cramer-microsoft-corporation-msft.html

J Challis said...

There is no doubt that the current market is putting a squeeze on the Internet lead industry. That said, it could still provide something of a boost in that now, more than ever, lenders are in dire need of viable marketing sources. The price for customer acquisition is certainly not going to go down under current market conditions, so, in my opinion, it will spur innovation such as the LTV validation you spoke of. But ultimately I think this industry turmoil is going to force the companies agile enough to adjust to the current needs of the marketplace to create a better product.