Mortgage lead generator LendingTree may be hoping to drive some less desirable lenders away by raising prices next month, some industry participants say.
As the marketing tactics of some mortgage lenders come under increased scrutiny, they say, LendingTree wants to rid itself from companies that make consumers sorry they used the site or others like it to search for a loan.
By raising prices, the thinking goes, LendingTree will only be attractive to lenders who can convert leads at high rates — a capability that reflects on a lender’s skill and integrity in working with customers.
“They are saying, I generate a pretty good lead, but sometimes when I give those leads to the lender network, they don’t close, and that’s hurting me significantly,” said Bill Rice, the chief executive officer of Kaleidico LLC, a Flat Rock, Mich.-based company that helps lenders manage their leads.
After providing their contact information and details about the loan they are seeking, consumers who visit mortgage lead generation sites are often “thrown into a blender,” Rice said. Leads are initially sold to four, five or more lenders, and prospective borrowers may also end up on “trigger lists” sold by credit-reporting agencies when their credit is pulled.
“Now they’re getting 15, 20 phone calls, and everyone is trying to hook them,” Rice said, sometimes with deceptive offers. “It often ends up with the consumer saying I don’t know how to deal with this. I’m just going to go to my local bank.”
“We are driving the customer to shop online for a rate, and then go away when it comes to origination,” Rice said.
LendingTree declined to comment on its plans to increase the price of its leads in October, or the rationale for the move. But those who have received advance notice from LendingTree about the increases say they are steep, and across the board — applying to loans of all sizes and borrowers with a range of credit scores.
During the height of the housing boom, lead generators typically charged more for information on prospective borrowers with poor credit, because those loans carried higher profit margins. But now many lenders are concentrating on borrowers with better credit, and on conforming loans of $417,000 or less that qualify for purchase or guarantee by Fannie Mae and Freddie Mac.
Michael Ferree, a lead manager for a San Diego-based national lender, said LendingTree is more than doubling its front-end “match fee” for leads on loans of $350,000 and higher, and boosting the much more substantial “closed loan” fee charged when lenders are able to convert leads.
“The thing with LendingTree is their leads are already so expensive,” said Ferree, who writes about the industry on his blog LeadCritic, and said he does not buy leads from LendingTree. “You need to convert them at 6 percent to be profitable.”
To make a profit on LendingTree leads after prices go up next month, Ferree estimates lenders will need to convert 8 percent or more into closed loans. He said most lead buyers are happy with 3 percent conversion rates, with big lenders sometimes converting at 2 percent and smaller lenders at 4 percent.
“I think they are trying to improve their network by pushing out weaker-performing buyers and therefore improving the customer experience and the profitability,” Ferree said.
Rice, who also writes about lead generation and marketing on his blog BetterCloser, said LendingTree executive Jessica Ordeman briefed clients on the rationale for the pending price increase at a recent summit meeting.
The price increase is part of a strategy to create customer loyalty at LendingTree, Rice said he was told, with the goal of generating higher-quality inquiries, and boosting repeat and referral business.
In surveying its customers, LendingTree discovered that those who successfully closed on a loan after submitting their information to the site were likely to recommend the company to a friend or family member, Rice said. But the scores plummeted dramatically when responses from consumers who did not close a loan were included.
If a lender is not managing its LendingTree leads effectively, Rice told readers of his blog, “then the new price structure will not work for their mortgage business. And LendingTree is OK with their logical departure from the network.”
Ferree told LeadCritic readers that he sees a fine line between success and failure as LendingTree draws “a line in the sand” that effectively says, “If you are a closer we want you on the network and if you are not we don’t want you.’ “
Ferree thinks the price increase could send many newly established and mid-tier lenders packing to other lead-generation providers because of the risk that they won’t be able to recoup the cost of the leads.
“Even top-producing buyers are going to feel the effect of the price increase and may choose to leave the network,” Ferree wrote.
Rice said that while it remains to be seen whether the strategy works, he is impressed with the thinking behind it. He told readers of BetterCloser that LendingTree’s new management team, led by Chief Executive Officer C.D. Davies, seems to share his desire to “put the consumer at the center, create expectations you can deliver on, effectively manage the lead experience, and create transparency.”
Rice’s company, Kaleidico, sells software that allows lenders to buy leads from a network of lead generators — including LendingTree — that have been vetted by the company.
LendingTree is one of about two dozen lead-generation companies built into Kaleidico’s lead-management software, allowing clients to buy and manage leads directly from those companies.
Rice said Kaleidico has no financial ties or exclusive arrangements with the lead-generation companies it partners with, and does not earn compensation for referring business to them.
Buying Internet leads can be risky, Rice said, and the percentage of lenders doing so remains “very small.” Kaleidico’s goal is to help lenders manage that risk by supplying software that helps them manage leads — whether they buy them or generate themselves — and by teaching best practices and techniques.
“In the past, there was no mechanism to tell you what to expect as far as conversion rates,” Price said. Lenders who tried to buy leads on their own often had a poor experience, he said.
“Lenders coming out of the cold don’t know the good from the bad. If you searched on Google for lead generators, generally, you won’t find the best companies,” Price said. The best companies, he said, “are not advertising to that market.”
Other companies that help lenders generate, qualify and convert leads include LeadQual and TARGUSinfo, while LeadPoint and Root Exchange provide exchanges where leads are bought and sold.
“At the end of the day what will drive success in this business, on both the lending and the lead-generation side, is the quality of the lead,” said LeadPoint Chief Marketing Officer Michael Rosenberg. “We’ve all seen the press on teaser rates and other forms of deceptive advertising — that doesn’t serve anyone very well. It doesn’t do us any good to pass along a lead that’s not generated by advertising that’s completely up front.”
Rosenberg said that although many mortgage lenders have closed their doors, the price of leads has stayed stable.
“What we’re seeing is folks adjusting their buying behavior based on market conditions,” Rosenberg said. “There was an initial shift out of jumbos, and now folks have started to jump back in.”
While some prospective home buyers have been sitting on the sidelines, waiting for prices to fall, Rosenberg said there “are plenty of leads available in various buckets. Eighteen months ago, there was a premium on poor-credit-type leads, and now there’s probably a glut of those.”