The Extinction of External Loan Officers Is Coming

In May 1997, Amazon, then an up-and-coming online shopping site, went public. It’s hard to believe this was 20 years ago! At that time, there were oceans of naysayers and skeptics. “An online shopping model won’t last,” Wall Street investors, who called the company a joke, said. What actually happened is that consumers embraced online shopping, Amazon became wildly successful, and the way the world shops shifted.

Think of it – most of the Western world changed their shopping habits! Considering the power of the internet and online shopping, it’s logical to assume radical changes are inevitable for every industry, including credit unions.

This is why I’m going to make a bold prediction about credit unions and mortgage marketing: External loan officers will soon be a thing of the past.

Does this make you a little uncomfortable? It should and here’s why.

Prior to 1997, the internet was already providing consumers with online shopping options. But consumers wanted more and Amazon happily filled that need. The almost universal adoption of “everything online” that came next quickly altered how all businesses operate. Those that adapted, thrived. Those that didn’t, floundered or died. The impact was that radical. Home buying and selling also saw significant changes – though more slowly.

Historically, a home buyer’s first stop in their home-buying journey started with a real estate agent, who was usually chosen based on word-of-mouth recommendations from friends. The agent was the only one with access to property listings and valuable MLS information. As the exclusive gatekeeper – or first point of contact in the real estate transaction – the agent could influence almost every aspect of the transaction, including the selection of a lender. Typically the agent had one or two preferred lenders and referred buyers to them, not the home buyer’s credit union.

It was a very exclusionary circuit. To be competitive, credit unions hired external loan officers to cultivate and nurture relationships with local agents and brokers. The ELO would promote the credit union’s mortgage programs and – as a result – sometimes, the agent would refer leads to the credit union. I call this a “begging strategy.”

While this may have been successful for a time, big changes were coming that would significantly impair this strategy.

Online Real Estate Leads Make Their Debut

Prior to 2000, property transactions followed the traditional course. Even though the internet was already causing changes in consumer buying behaviors, the big players in the real estate and mortgage arenas surprisingly had no sense of urgency to adapt.

Their delay in response was a near-fatal mistake for the industry’s legacy companies. It opened the door for a new generation of tech-based, forward-thinking, real estate-focused businesses to pounce on the opportunity to make some real change.

In 2001, a few companies began posting MLS online, and we learned that consumers like to surf the web and just look at homes. Further, we found that potential homeowners preferred doing their own research. Startups like Redfin and Zillow moved in to exploit this and were very successful.

For the real estate and mortgage industries, this was the game-changing “Amazon moment” that left traditionalists behind. Over the next 10 years, we saw even more new players enter the market offering new services that:

• Use the internet as a mechanism to capture leads and sell them to agents and mortgage companies;
• Help real estate brokers and agents develop their own listing websites; and
• Deliver SEO and SEM services to increase traffic and exposure for the websites of real estate brokers and agents.

Home buyers loved the changes! And, as a result, they quickly established new online home buying patterns.

Real Estate Lead Pipelines Find a New Source

Today, more than half of all home buyers start their search online. In 2016, just over five million homes sold in the U.S., yet more than 200 million unique visitors were counted at top real estate search portals. This reflects a new truth in real estate: Home buyers prefer a one-stop, online shopping experience.

The shift is not just tech focused. It’s generational when we consider millennial agents. Compared to previous generations, these tech-born entrepreneurs are web savvy – they have been using many forms of digital technology their entire lives. While older agents are being forced to abandon their traditional way of doing business and adapt to a digital model, millennial agents are simply leveraging the technology and processes they already know. And as older agents retire and leave the industry, the millennial mindset will become the standard for the industry’s thought leaders.

It’s a new normal that has resulted in a shift in lead sources. Before the internet, real estate agents built their businesses through calculated networking and tenacious cold calling. Determined agents built an extensive catalog of prospects, giving them an edge in the market. The internet changed that. Agents now largely rely on leads generated online from subscription sources such as Zillow.

These web-based leads are available to other industries, too. Credit unions, mortgage brokers, banks and powerhouses like Bank of America and Quicken Loans all subscribe to the same feeds. This means that ELOs who court agents for mortgage referrals are, in essence, pursuing leads that are already available to the credit union – but without a middleman.

Why ELOs Are Being Phased Out

Over the last 16 years, I have worked with hundreds of credit union mortgage departments across the U.S. In that time I’ve had the opportunity to observe and identify some wonderful best practices and some really bad failures. One of these failures is this: Most credit unions don’t have a successful ELO program, and, surprisingly, they don’t know it. This is true even when it’s clear that their program is not generating much business.

The lack of awareness is connected to the outdated, traditional real estate model, when the agent was the first point of contact and influenced all things related to the transaction. During that time, an ELO strategy made perfect sense. Some credit unions still operate as though the cycle has not changed. This, coupled with the fact that the ELO model has been part of the mortgage marketing landscape for decades, makes it difficult to change and leave the model behind.

However, just as the real estate agent’s world has changed, there is a new normal for credit unions in the mortgage business. While real estate agents remain an integral part of the home purchase process, ELOs are no longer needed to network with them to gain access to home buyers and their mortgages. Credit unions can access good, warm leads better, faster and more easily with technology. And many credit unions are transitioning their ELOs into internal loan officers successfully.

Home-Buying Patterns Reveal a Much More Effective Model

Remember, contacting an agent is now one of the last steps in the consumer’s home-buying journey. According to the National Association of Realtors, only 17% of buyers start their journey by contacting an agent. The majority – 54% – of buyers start their real estate journey online, without an agent. And more than 90% use the internet at some point. By the time an ELO gets a lead from an agent, the buyer has probably already armed themselves with all the information they need and made decisions about a lender.

Today, the most successful credit union mortgage lenders – those closing the largest volume of purchase mortgages – are inserting themselves much earlier into the buyer’s journey. Here’s why:

The real estate and purchase mortgage industries have been tracking, analyzing and aggregating traditional and online data about home buyers for almost two decades. So we have a very clear picture of contemporary home-buying patterns, which can be broken down into four phases.

Buyers now work through a discovery phase first – looking online at properties and entertaining themselves with real estate content like photos, maps, property values and recent sales. When they decide that a move is in their future, they actively start the research phase. It’s during this time that buyers typically turn to an advocate – someone who can help them take the best next step – which is typically a real estate agent. Then, in the selection phase, they narrow down their housing and financing options.

Knowing this, a more effective mortgage marketing strategy would focus on building a bigger lead funnel by delivering the real estate services that buyers and sellers need as a one-stop shopping option, online. Which is how they want it.

This means that the discovery and research phases are the new marketing sweet spots. Targeting these phases reaches buyers long before they are ready to talk about a mortgage and long before they have spoken to an agent or a loan officer. It’s a strategy that creates the opportunity for credit unions to become the first point of contact for their members and leads to higher purchase mortgage closing rates.

Importantly, these contemporary phases and home-buying patterns bypass the ELO, which brings me back to my bold prediction: External loan officers will soon be a thing of the past.

Mike Corn is CEO and Co-Founder of CU Realty Services. He can be reached at 800-203-9014 or mike@curealty.com.