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Jack M. Guttentag The Mortgage Professor

Jack M. Guttentag, The Mortgage Professor

Taking a Look at Zillow's Mortgage Site

by Jack M. Guttentag

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Posted on Tuesday, June 17, 2008, 12:00AM

Zillow.com, the popular real estate site, now has a complementary mortgage site. It is also complimentary, since neither participating lenders nor borrowers pay for the service.

Prospective borrowers fill out a long questionnaire, similar to a mortgage application, except that the borrower's identity is not disclosed. The questionnaire is made available to all participating loan providers (LPs), who are defined as individual loan officers or brokers, rather than firms.

Any LP may submit price quotes along with information about themselves. Borrowers also have access to ratings other borrowers have given the LPs. The borrower's identity is revealed only when he contacts an LP, and only to that LP.

Submitting a Loan Request

The anonymity of the process allowed me to kick the tires by submitting a loan request. I received quotes from six loan providers on my fictitious house purchase in Valley Forge, Pa.

This site has some features I really like. One is placing the initiative to select an LP in the borrower's hands. This is in sharp contrast to the modus operandi of lead generation sites such as Lendingtree.com or Lowermybills.com, where three or four firms selected by the site pay for the right to contact the borrower.

Identifying LPs as individuals rather than firms is also a good idea. Realtors who refer home buyers to LPs have always used this approach, because even the best firms may harbor incompetents or rogues.

Zillow has also done a good job in designing a uniform format that all LPs must use to quote prices. All quotes are comparable and are shown on one screen. Each quote shows the type of loan, interest rate, APR, total lender fees, and monthly payment. The user can click on the quote of any one LP and get more detail, including critically important information about adjustable-rate mortgages.

Shopping Anonymously

Shopping anonymously should appeal to borrowers because it means that they can control the process, select whom they want to deal with, and not be harassed by others. But anonymity comes at a price. No LP is going to invest any significant amount of time on anonymous borrowers, so they come up with a quick quote, include a prepackaged testimonial about how good they are and how much they would enjoy working with you, and leave it at that. They don't even bother keeping their quotes up to date.

For example, I signed on over the Memorial Day weekend. On Tuesday, I received quotes from six LPs. I didn't get to check until Thursday, however, and over those two days, market rates had jumped almost a quarter of a percentage point. None of the six LPs had bothered to update their quotes. Maybe if rates had gone down instead of up, they would have.

The major weakness of Zillow Mortgage from a borrower's perspective is that the price quotes don't necessarily mean anything, so using them as the basis for selecting an LP is hazardous. Further, Zillow is very unhelpful in indicating what the price quotes do and don't mean.

At best, a quoted price is the price the LP could deliver on the loan specified by the borrower, provided that a) the borrower can be approved for the loan, and b) given approval, the price can be locked immediately.

Guessing About Approval

But the LP is guessing about approval. It is an educated guess, based on the information provided by the borrower, which is extensive. The LP can't confirm the information, however, and can't run it through an automated underwriting program, because those programs require an identifiable borrower.

In a world where underwriting requirements have substantially tightened, this is a problem. It is not unique to Zillow, but I would expect Zillow to explain it to borrowers, and they don't.

The second assumption underlying a price quote is that the loan can be locked immediately, which of course it can't; the borrower has to apply and be approved first. This means the LP can't be held to a quote, which creates a temptation to low-ball the price in order to be the LP the borrower contacts.

Zillow does have some things to say to LPs about this issue. First, they warn LPs not to low-ball because it will be reflected in poor ratings, which will hurt the LP in the long run. That's fine.

An Impossible Standard

Unfortunately, Zillow also tell LPs, "We expect you to stand by your quote if the information provided by the borrower is accurate." That says that price quotes are locks, which is ridiculous. No LP can afford to lock a price quote in a volatile market with no commitment from the borrower. This is an impossible standard, and can only confuse borrowers.

Zillow should explain to borrowers the assumptions underlying price quotes, and impose a requirement on LPs that makes sense. I would have them quote prices for a minimum of three days, which would be very educational for borrowers. Zillow can also suggest to borrowers that, when they contact an LP, they ask the LP to keep quotes current until the price is locked.

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60 Comments

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  • Yahoo! Finance User - Tuesday, June 24, 2008, 9:48AM ET  Report Abuse

    • Overall: 1/5

    This article could have been 1/2 the length. BORING!!!

  • Yahoo! Finance User - Tuesday, June 24, 2008, 12:28AM ET  Report Abuse

    • Overall: 4/5

    This is a very good insight.Simple to use and make the right choice.I have use it multiple times,concise and to the point.I don't have the time to spend on the phone listening. I know what I'm looking for and that is all the time that I have .It's my time and I expect the best deal & offer when I have tried it.

  • chambo - Monday, June 23, 2008, 4:11PM ET  Report Abuse

    • Overall: 2/5

    This feature is completely worthless... with no personal information the LP can't quote anything, let alone commit. Zillow is burning through cash and is in deep trouble with no sustainable business model on the horizon. You may as well just go to the lenders websites and see what the rates are advertised on the home page... you'll get the ballpark idea and have about the same level of commitment from the lender (none) that they will give you that rate; without having to waste your time filling out a lengthy form.

  • Yahoo! Finance User - Sunday, June 22, 2008, 10:04AM ET  Report Abuse

    • Overall: 3/5

    I think this is generally a good idea from Zillow but I also recommend using your local credit unions. There is half the paperwork and they use simple interest loans. If you like to pay extra every week, get a simple interest loan and pay your home off in a couple of years, don't use mortgage loans unless you consistently pay a few days after the 1st every month.

  • Yahoo! Finance User - Saturday, June 21, 2008, 9:50PM ET  Report Abuse

    • Overall: 4/5

    Tom, from 6/18- who speculated in investment RE and is now concerned with foreclosure, I am sorry for your situation. However, you took the risk and then blame the market and the banks for your troubles. The banks gave you what you wanted, but you didn't know what you were doing and now make excuses. Be honest with yourself, you might learn somethibg.

  • Yahoo! Finance User - Saturday, June 21, 2008, 7:56AM ET  Report Abuse

    • Overall: 1/5

    First you get this bald old guy who is giving Zillow free advertising. Then you get some guy working for Zillow giving volumes in an earlier post. See a pattern here folks? Yeah Zillow may give you a chance at a decent mortgage, for about maybe 60-120 days, then I would be (like most mortgage companies), it will get sold to the highest bidder out there, and then your great mortgage starts going higher and higher. Also if you think your information is so secure, to be putting it out over the internet......think again. But like the millionaire wannabes out there...there was one during the Great Depression that once said "There's a sucker born every minute.." and Jack Gutentag's article is a good example. EARTH TO YAHOO: Apparently your CFO is lacking some brains to allow your columnists to give out free advertising. No wonder you are going through a reorganization.

  • Yahoo! Finance User - Friday, June 20, 2008, 6:04PM ET  Report Abuse

    • Overall: 1/5

    Mr. Guttentag, if your intention is to inform the general public of how to secure a great deal and avoid most of the problems with the mortgage process, all you have to do is tell them to consult with a professional who is local to their area and, preferable, who can prove a history of satisfactory service. All this nonsense about directly or indirectly endorsing a specific company is not fair to the consumer. Let these companies rely on the traditional means of advertising and stop using the media to push their problematic services, of which Zillow appears to have many. The reader who made a comment earlier about the client being converted into a lead that is sold to a lender, was absolutely right. The idea of lenders competing for your business is ridiculous. These companies are looking to squeeze as much profit out of each and every lead as humanly possible.

  • crest cap - Friday, June 20, 2008, 2:31PM ET  Report Abuse

    • Overall: 2/5

    This articel makes a great point: "in sharp contrast to the modus operandi of lead generation sites such as Lendingtree.com or Lowermybills.com, where three or four firms selected by the site pay for the right to contact the borrower." Like the article at http://equipmentfinance.net/blog/credit/banks-trashed-your-credit-and-spamming-you/ most people don't realize they are being sold as a "lead" rahter than being competed for based on rate.

  • QuestionRequest - Thursday, June 19, 2008, 11:08PM ET  Report Abuse

    • Overall: 1/5

    Zillow's worthless. It pretty much parrots the price that the owner is listing on realtor.com.

  • Yahoo! Finance User - Thursday, June 19, 2008, 2:15PM ET  Report Abuse

    • Overall: 4/5

    I got my loan thru Zillow. Let me tell just this. I submitted my request on Thursday and I closed on the following Friday (8 days). So please don't make blunt statements that you need 2 months for that. They can't lock the rate but if you are fast with documents, you can get more or less the same rate as quoted (which I did).

  • Yahoo! Finance User - Thursday, June 19, 2008, 12:47PM ET  Report Abuse

    • Overall: 1/5

    Mr. Guttentag, PLEASE use your influence to protect the interest of the homeowner and lobby to stop docket # (FR-5180-P-01). This is only going to mislead confuse frustrate homebuyers and current homeowners further.

  • GeorgeK - Thursday, June 19, 2008, 11:56AM ET  Report Abuse

    • Overall: 1/5

    How much did Zillow pay him for this add. Your correct it is time for Yahoo to replace this guy. Three day loan locks that is not part of this industry right now. In fact many banks do not want locks done until they have run the loan thru the Fannie Mae and or Freddie Mac computer underwriting systems. They can not afford the hedging fees for all the loans that fall out as a result of low loan to values. JACK where are you on the passage of the FHA BILL that is tied up in Congress and the SENATE. Give us some real stories instead of trying to drive traffic to some web site.

  • bankerboy - Thursday, June 19, 2008, 11:07AM ET  Report Abuse

    • Overall: 1/5

    Yet more dribble from someone who has no understanding whatsoever of the mortgage business. FNMA/Freddie now have overlays that impact every aspect of the best rates available to a customer that take into account loan to value, credit score, loan purpose and property type. The most absurd part of this is the expectation of the writer that mortgage quotes should be good for 3 days. Mortgage rates are a function of mortgage backed securities. The next time you can get the bond market to stand still keep drinking the Koolaide. Bond markets are nervous and voilatile, even more so than the equity markets. Could we perhaps get someone on Yahoo finance who has actually earned a living rather than an "intellectual" who overthinks the nuances and tells us how thinks should be in his perfect world.

  • Salvatore G - Thursday, June 19, 2008, 9:39AM ET  Report Abuse

    • Overall: 1/5

    Boring.

  • Tom - Wednesday, June 18, 2008, 10:00PM ET  Report Abuse

    • Overall: 3/5

    This “expert,” as is the case with all of the other “experts” misses the point entirely. I was a fool, I bought investment property, I put 25-30 % down. Others did not. I was sucker punched by the lenders because the other loans defaulted, foreclosed, short-sales, etc. The property values dropped with these new lower values. My equity is gone. The banks simply need to lower my monthly payment to reflect this new lower value that they created by writing the other loans that defaulted. Simple. Just lower my monthly overhead so I do not fold under the new lower values. You see, with lower values, abandoned properties in the neighborhood, (a condo development) it is now impossible to get the rents I got in the past. Insurance, taxes, HOA fees, all went up. In some cases HOA fees are skyrocketing as there are too many vacant units to cover the monthly expenses for maintenance. It is a spiraling fall. So, if I go into foreclosure (after never even being late on a payment in 30 years), I enter my retirement years with no credit. Wow, did I just read today that bankruptcies among seniors are up something like 430%? I wonder why? Please Mr. Expert, explain the reasoning behind the perpetration of this crime against hard working people like myself who were playing by the rules the banks were breaking? And stop writing about this other fluff. Thank you.

  • Yahoo! Finance User - Wednesday, June 18, 2008, 7:49PM ET  Report Abuse

    • Overall: 2/5

    This article does a good job in highlighting one key point: what you want and what you get are two different things. The notion that Zillow is now offering this service, seems a little ridiculous, considering the fire they came under for the misunderstandings and misconceptions created by their home valuing service. I see one outcome for this service: the increased probability of bait and switching to occur during this process. The old saying "you get what you pay for" applies here wholeheartedly. No finance professional worth their salt is going to subscribe to the commoditizing of their services and be pitted against the inexperienced rep or unscrupulous individual who promises the world upfront and fails to deliver when you pass the point of no return (such as when you remove contingency protections). I have worked as an in-house loan officer for many prestigious real estate offices for over several years and my level of accountability is constantly tested. You would never find this on a service that cannot ensure what is quoted as being reliable. Zillow has no method of keeping an unethical loan professional from quoting whatever the client wants to hear and then altering what has been offerred when the client feels committed. Nor can they protect the client from the mistakes that most junior loan reps commit, which unfortunately can result in lost time and/or money for the client. All in all, folks, I always recommend that the client consult with a lender who is local to them, knows their surrounding area and has a proven record of living up to the standards imposed on them by other individuals, clients and professional associates alike. Leave the internet lead wholesale outfits, such as Zillow and Lending Tree, to the novices who do not know any better and are bound to become victims of the inexperienced loan reps and predatory sharks of our industry.

  • Yahoo! Finance User - Wednesday, June 18, 2008, 6:57PM ET  Report Abuse

    • Overall: 4/5

    the article is good as it exposes the problem with quotes. There is just too much info that needs to be relayed to an LP to give you an accurate quote in an ever changing market not to even mention values of homes declining and an accurate credit picture. Before even considering a mortgage pay for a trimerge report which gives you the three main bureaus and the middle one is your credit score that a mortgage company will use. There are good LP's out there you just have to find us and build a relationship on it. It's like finding a good financial advisor that you will call the rest of your life.

  • David G - Wednesday, June 18, 2008, 4:55PM ET  Report Abuse

    • Overall: 4/5

    Hi Jack, it's David G from Zillow.com, Thanks for this thorough and thoughtful review! You are totally correct when you say that a loan quote can not be taken to the bank. It's not accurate however to suggest that quotes are meaningless or that Zillow doesn't explain to borrowers how they should be used. Quotes on Zillow are clearly geared towards selecting a lender to complete an application with and as such, have a very clear utility. Every quote you received should included the advice that your next step, should you contact the lender, is to request a binding good faith estimate. In the mortgage help center on Zillow we go on to discuss the importance of locking your rate if you decide to proceed with the loan. The quote is just the starting point for the interaction between a borrower and a LP but it's a critical interaction because the quality of the quote a borrower receives is strong clue to the honesty and accuracy of the LP. A quote on Zillow is essentially a promise made by a lender to a borrower and the review system reflects how well lenders keep those promises. Obviously, that's a two-way street and so, the accuracy of quotes is limited by the accuracy of requests. I want to be clear that we don't pretend to have solutions for the inherent complexities of the mortgage industry. The fact that rates can change intra-day is a reality that borrowers and lenders deal with regardless of whether or not they meet on Zillow. For a borrower and a lender to do business they have to discuss loan quotes at some point; it's always been that way and will always be that way. All that Zillow has done is to make the quote the starting point for that conversation. Also; there's nothing stopping LP's from running the loan request information through an automated pricing / underwriting system. Many lenders already do that to ensure their quote is quick and accurate. We also plan to add a computer interface that will allow lenders to fully automate their quotes on Zillow. Rate quotes certainly are not locked rates. If that wording is on the site anywhere, we need to get it changed - please e-mail me the link. That said, I'm pretty confident that we've never made such a claim. If you cannot find it on the site, please correct your post. Our primary goal with Zillow Mortgage Marketplace is to put borrowers in the driving seat for their mortgage shopping experience and so I am thrilled to read that your experience demonstrated how significantly different this option is when compared to traditional online solutions available to borrowers.

  • Irving - Wednesday, June 18, 2008, 2:56PM ET  Report Abuse

    • Overall: 2/5

    Hey mjff. I don't know what parallel universe you are in, but approval in 30 minutes? 2 months is more like it, unless you are buying a bad loan or dealing with a predatory lender. I have a buyer trying for an FHA loan for over a month. The due diligence is back, and with layoffs in the industry, the turn-around times are long and getting longer.

  • MartinF - Wednesday, June 18, 2008, 2:49PM ET  Report Abuse

    • Overall: 2/5

    I quote loans on Zillow, and I can assure you the rates quoted are not locks and it is clear they are not locks. The market has been so volatile lately (up to 4 price changes per day) that keeping the quotes current would be nearly impossible, and a huge waste of time. The response rate to quotes, even when you are the lowest quote, is only about 1%. The biggest problem with Zillow's mortgage site is the lack of serious borrowers. If you aren't going to act on the quote you receive why waste your time and mine requesting it in the first place? I am in TX, and in TX you can lose your license if you engage in bait and switch tactics. Request a quote, and if you like it contact the lender to lock. You can complete a loan application and be approved in less than 30 minutes, and lock your rate. If you aren't ready to lock, then you shouldn't be asking for quotes. If somebody bait and switches you, file a complaint with their regulator, and leave negative feedback to warn others.

  • Yahoo! Finance User - Wednesday, June 18, 2008, 2:45PM ET  Report Abuse

    • Overall: 1/5

    Zillow is worthless at predicting home prices, I would guess that when it allows individuals to quote programs, it doesn't require them to be accurate either, what's to say somebody isn't fudging numbers? Zillow should be put out of business, it is garbage.

  • JazzMan - Wednesday, June 18, 2008, 1:48PM ET  Report Abuse

    • Overall: 5/5

    Good article. I'm fairly knowledgeable in regards to mortgages, but I didn't know about the new Zillow feature, although I'd be able to foresee the limitations Mr. Guttentag cites. Even though I'm pretty experienced, I think it is very helpful for the "Average Joe" to know about the issues and the differences between the Zillow service and that of sites like Lending Tree, Lowermybills, etc. And as a rebuttal to Stephen M., I actually did find my refi via Lending Tree. I was very surprised because I had called around on my own to quite a few places, including the top lending contacts I had discovered 5 years ago. LT unearthed a few others and I used a couple of the competing offers to get a better deal from the eventual "winner.' I agree with mdr1227. You absolutely have to provide correct credit info and expect in today's market that Zillow and other sites will have inflated values. It's CYA time out there for appraisers and lenders. They will always err on the side of caution. Absolutely get a credit report with a FICO score before you start shopping for a loan. And don't be afraid to question an appraisal or even pay for one on your own. Then you know exactly where you stand as you start to negotiate w/ lenders.

  • Crownover - Wednesday, June 18, 2008, 1:47PM ET  Report Abuse

    • Overall: 2/5

    Zillow is often inaccurate, but unfortunately many potential homebuyers/sellers use this as a resource. Now is obviously not the time to sell, rents are still fairly high in most areas though. I live in the florida area and know many people in the central florida area who are paying the majority of their mortgage through rent money. www.firstpropertymanagementservices.com seems to be the most popular site in our area for any other florida readers.

  • lololoans - Wednesday, June 18, 2008, 1:46PM ET  Report Abuse

    • Overall: 3/5

    Spot on about rate quotes, I always add my own discalimer as well. Interesting conscept as www.homegain.com has been doing the same model for Consumers looking for Realtors since 1999

  • Yahoo Bill - Wednesday, June 18, 2008, 1:23PM ET  Report Abuse

    • Overall: 1/5

    "Unfortunately, Zillow also tell LPs, "We expect you to stand by your quote if the information provided by the borrower is accurate." That says that price quotes are locks, which is ridiculous. No LP can afford to lock a price quote in a volatile market with no commitment from the borrower. This is an impossible standard, and can only confuse borrowers." No it's not an impossible standard to meet Jack. The lenders merely need to factor in the risk associated with locking in price quote. I'm beginning to think the people in the banking and mortgage industries who made all the ridiculous loans during the housing bubble are as stupid and reckless as the borrowers.

  • Tu - Wednesday, June 18, 2008, 1:16PM ET  Report Abuse

    • Overall: 2/5

    So what - the article is what it is. I do love the iron is Mr. Wisdom knocking it for its "kindergarden" review while misspelling it.

  • Robyn_Thomas7760 - Wednesday, June 18, 2008, 12:55PM ET  Report Abuse

    • Overall: 4/5

    In response to one LP regarding consumers being honest about FICO scores; there is a big problem there. When a consumer obtains a score from one of the online providers for example, it is often several (30-50 points) higher than the consolidated report generated for loan purposes. Many folks think they know their scores. FICO should be consistent for consumer and lending users, but it is not. It is fuzzy. If a consumers information is correct (based on information supplied to them from the bureaus but different from what the lender gets from the same) the consumer in essence is "honest"...and the LP is locked. Very risky!

  • Manoj - Wednesday, June 18, 2008, 12:47PM ET  Report Abuse

    • Overall: 3/5

    I can't believe how quickly people dismiss something. zillow.com is a good site and present information as accurately as possible. The history of sales on houses is very accurate and the estimate may be off but it gives you an idea. You can always cross check but as you should know the accurate price is what buyer is willing to pay, not what zillow says. People nowdays are very quick to jump guns on others and have no patience to think and analyse. I am observing this a lot lately and going to read ' The Dumbest generation'. It may explain why.

  • Mr. Wisdom - Wednesday, June 18, 2008, 12:43PM ET  Report Abuse

    • Overall: 1/5

    What kind of BS is this???? You're actually doing kindergarden reviews of websites?? Mortgage related websites??? Are you nuts? Get with it! You are like the other clowns on Yahoo Finance - you don't know wtf is going on.

  • wgaf - Wednesday, June 18, 2008, 12:42PM ET  Report Abuse

    • Overall: 2/5

    reviewing websites is of some value but not much

Showing comments 6-35 of 60<< PreviousNext >>

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