"I Can't Compete With The
'BIG' Online Lenders"

Article by: Doug Perry

I wish I had a dollar for every time I've heard someone express their concerns about not being able to compete with "The Big Online Lenders." My usual response is: Why would you want to?

Mistakes are meant to teach you something. Yet, there are several huge mistakes these "BIG" online lending companies are repeating over and over - and they just never seem to learn their lesson. If nothing else, most of these "BIG" online lenders have taught us what not to do!

Let's explore one of the things these companies are doing wrong, how much it costs them and why they are competing with you, you are not competing with them. Here is one common misconception:

It takes a lot of money to compete on the internet:

Not true! Marketing your loan business takes careful planning, education, patience and a small advertising budget. Most of the "BIG" online loan companies you hear about have a "BIG" advertising budget backed by venture capitalists who eventually will want a return on their investment.

"BIG" online lenders also have a "BIG" business overhead that makes it impossible to make any kind of a reasonable profit. They are either too impatient to learn to market loans properly themselves, or they trust their promotions to people who know nothing about the loan business (people who have never originated a loan in their lives). They may get lots of "hits" on their web sites, but they close very few loans.

Without regard for the borrower, these "BIG" lending companies have become money-hungry monsters that constantly think it's time for dinner. The "BIG" online lending companies that are over-promoting their web sites are losing a ton of money every quarter (some around $250,000 or more) by spending extravagant amounts on the wrong types of advertising to try and obtain marketshare (like $1.5 Million for two key words on Yahoo). How many loans do you think they have to close to make this money back?

And, what kind of potential borrowers do you think these "BIG" advertisers attract? Without a doubt, they attract "Rate Shoppers!"

In my experience as a mortgage broker, Rate Shoppers are the worst types of borrowers you can attract. Here's why:

(1) A Rate Shopper may call you every day to tell you of another lender that is advertising a lower rate (even if they can't qualify for the loan program).

(2) A Rate Shopper seems to have a problem believing anything you tell them, possibly because they are secretly dealing with a loan officer from another company who is telling them something different than you are telling them.

(3) A Rate Shopper will sometimes question every scrap of documentation that you request them to provide to get the loan done.

(4) Typically, Rate Shoppers are not "A" paper borrowers, but would-be borrowers trying to get a better rate than their credit scores will permit because they don't want to accept the fact that their credit stinks!

Attracting Rate Shoppers is a huge reason why these "BIG" online lenders have such a lousy closing ratio (at last count, our research showed most of these BIG lenders had less than a 30% closing ratio - many as low as 2% to 3%). Would this closing ratio be acceptable to you? This tells you what their borrowers must think.

"BIG" Branding Bloopers:

In my book, losing money in the mortgage business is not an acceptable option. Somehow, the "BIG" online lender "bean counters" have surmised that there is an acceptable ratio for losing money in the loan business. Mostly this is due to an overoptimistic branding effort conjured up by marketing "specialists" who have no stake in the outcome and don't realize that branding campaigns (for the most part) are a losing proposition for a new internet company.

Branding is effective for Coca Cola, Kleenex or a company like Ford who might spend $3 Million on an ad for 30 seconds during the Super Bowl. They have spent years building their brand. And, you pay for their extravagance when you purchase a product from them. Online lenders have yet to prove that this tactic of ridiculous advertising spending and rate-cutting works well (or at all for that matter) in the online mortgage business.

You don't need "BIG" bucks to market and compete effectively on the internet.

I personally know of many online lenders who apply careful planning, education and patience to produce a constant and significant profit to their bottom line from loans originated on the internet - and they aren't in debt due to their advertising campaigns.

Patience is the key. It is said that "A sign of true patience is finding something productive to do while you're waiting." So, devise your marketing plan carefully, educate your management team and your loan consultants about your web site, and be patient (give it a little time for your plan to work and those search engines to update their listings).

Let Borrowers Know You're Out There.

Promote your web site URL (Web Site Address) by printing it on everything you pass out (business cards), mail (flyers, ads, customer birthday cards, letters) and advertise (Yellow pages, local newspaper, etc.). This will not cost you one cent more than it does right now, yet you wouldn't believe the number of lenders who don't practice this.

The old web site marketing belief touting "if you build it, they will come" may work for baseball fields in movies, but never has worked for mortgage web sites. The internet is a great marketing media, but you have to learn the ropes and treat it seriously like any other advertising media.

Who's Really Competing With Whom?

To sum it all up, the "BIG" online lenders are trying to compete with you, not the other way around. The truth is, most borrowers who are interested in applying for a loan over the internet first look to see if a local lender or mortgage broker has a web site. They feel better if you're close by. They may even want to come to your office and check things out.

This is a playing field that the "BIG" online lending companies don't have the benefit of competing in - and never will. They also can't offer the borrower genuine personalized (one on one) service, and it is doubtful that they will ever have a personal or long-lasting relationship with their borrowers.

Technology exists to easily and affordably keep ahead of these so-called giants and you can do a better job of satisfying your borrower's needs with nowhere near the cost and effort these "BIG" online lenders expend.

The truth is, The "BIG" online lenders can't compete with you!


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Doug Perry is the developer of a large number of mortgage lending web sites and is currently President of Click1003 where he develops Interactive Online Mortgage Application Software that integrates into all major loan origination systems for the mortgage industry. Doug is also President and Managing Editor of Mortgage Marketing Online, a web site devoted to helping the lending industry learn and apply marketing techniques to their online and offline lending businesses. As a loan consultant and California Mortgage Broker, Doug served eight years originating loans in California.

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