When it comes to mortgages everyone gets the idea that borrowers should shop around and let lenders battle for their business. Such shopping largely doesn’t happen, but a looming new player in the mortgage comparison game may change that.
“For most borrowers,” said a January report from the Consumer Financial Protection Bureau, “the mortgage shopping process stops after their first application.” Indeed, the CFPB found that 77 percent of all borrowers “shopped” by going to just a single lender.
But what if they had a more-familiar place to search for rates? The terms “Google” and “compare” no doubt make U.S. lenders leery because the general effect of the Internet is to drive prices as close to zero as possible, but what would happen if Google launched a mortgage comparison tool in the U.S.?
This is not such an easy question. On one hand there are existing mortgage comparison sites such as LendingTree and Quicken. On the other Google is not just another competitor, it’s so large and so dominant in so many ways that the lending industry would be foolish to ignore the potential consequences of any new Google mortgage service.
Google and Mortgages
Google has actual offered mortgage comparisons before. Six years ago, Google announced the introduction of a “comparison ads” system, a system specifically designed to include mortgage ads.
“AdWords,” said Google in 2009, “uses a host of targeting and relevancy signals to determine the best ads for each query. However, sometimes a user’s query doesn’t provide enough information for us to confidently predict what they want. Take, for example, users who search for ‘mortgage.’ Do they want a new home loan or a refinance? Do they want a fixed rate or an adjustable rate loan? Comparison Ads improves the ad experience on Google.com by letting users specify exactly what they are looking for and helping them quickly compare relevant offers side by side.”
It continued and added, “with comparison ads, you can also target your offers at a more granular level, leading to more valuable, qualified leads. To see how it works, let’s use our mortgage example. Users searching for ‘mortgage’ on Google.com may see a promotion from comparison ads prompting them to select the type of loan they are looking for and to compare various rates.”
By 2011 Google combined various comparison tools into a “Google Advisor” system that included “the credit card, CD, checking account, savings account, and cars verticals.” By 2012 the mortgage tool was no longer online in the US.
The Google Advisor system is no longer available but comparison tools for credit cards and auto insurance remain online. As to mortgages, the “Google Compare” system for real estate financing is alive and active — in Great Britain.
The UK mortgage platform might seem like a good idea — after all, what could possibly be more fair than a mortgage comparison system open to all lenders — but not everyone is so certain.
“In the U.S.,” reports Search Engine Land, “the Federal Trade Commission declined to pursue an antitrust action against Google on the basis of vertical search results. However, in Europe it does appear that officials have essentially accepted the argument that Google’s vertical/universal search results are unfair and anticompetitive when they threaten to “divert” traffic from third-party sites.”
Back in the USA
Google has just launched a mortgage calculator. This is hardly a big deal because the Internet is stuffed with such tools but with Google in the mix the market might change.
“Google is so dominant on the Internet that we worry that this calculator’s simplicity could be misleading,” says Realtor.com, not exactly a disinterested party. “We’ve already been hearing stories about first-time buyers using such basic calculations to compute their potential expenses, only to be shocked at how many other factors affect their purchasing ability. If Google’s ubiquity adds to that, it won’t exactly be helping the prospective buyers it’s aiming to serve.”
Realtor.com, of course, already has a mortgage calculator online too.
The suspicion that Google may want to re-enter the mortgage comparison field is not unfounded. For instance, on SimplyHired, Google has advertised for someone who can “identify external mortgage industry trends and communicate these internally, informing our strategy in this sector.” Qualifications include three years as a “licensed loan originator, or as an originator with a financial institution (bank, credit union, etc.).” Google would like candidates to have five years of experience plus completion of the “National NMLS exam, including credit for the Uniform State Test (UST) portion.”
For its part Google could adopt one of two basic strategies for a mortgage comparison feature, either of which could greatly impact the mortgage industry.
First, it could have a mortgage information cluster and charge lenders for advertising. As a “financial publisher” it would be virtually immune from anti-trust or other claims because it’s not selling mortgages; it’s selling ad space to anyone with a checkbook from an editorial platform.
Second, it could become a licensed mortgage lender — see the Simply Hired ad — and get a piece of the action for every mortgage that closes through its system. This could be a massive business that might radically change the lending industry.
A check of the Nationwide Mortgage Licensing System & Registry (NMLS) shows that Google already has licensed Google Compare Credit Cards Inc. (NMLS ID:1253356) and the Google Payment Corp. (NMLS ID:911607). The address listed for both companies is 1600 Amphitheatre Parkway, Mountain View, CA 94043, aka the “Googleplex.”
Think about it: There are a number of mortgage comparison sites now online and yet the majority of borrowers — that 77 percent — simply don’t shop. How convenient would it be to go online, head to the friendly, well-known Google mortgage comparison center, press a few buttons, and have a host of lenders competing for your business?
Google is actually in a good position to do this. It has market share, capital, name recognition and surely knows how to get good search engine results…. Moreover, there’s evidence that Google could quickly emerge as a dominant competitor.
A 2014 study by Accenture found that “younger bank customers are nearly twice as likely as older customers to consider switching to a branchless bank and to consider banking with major technology players if those companies offered banking services.”
In particular, the study showed that “significant percentages of consumers — particularly younger ones — would be open to banking with technology players such as Google, Amazon and Apple if the companies offered such services. Among consumers ages 18 to 34, 40 percent said they would consider banking with Google, 37 percent would consider banking with Amazon, and 34 percent would consider banking with Apple.”
The addition of a new competitive platform is both an opportunity and a challenge for lenders. The opportunity is to meet large armies of prospective borrowers under the Google imprimatur. The challenge is that Google — like Walmart — will push down supplier prices, the “suppliers” in this case being lenders.