A common question associated with the online mortgage lead environment is whether any lead is truly exclusive. There are valid arguments on both sides. Some end-users (mortgage brokers) feel that leads cannot be exclusive because that would imply brokers have no contact with each other. In fact, Jupiter Research estimates that the average mortgage consumer submits inquiry information on 2.4 mortgage Web sites. Yes, XYZ Lead Company may distribute the lead once, but this speaks nothing about what the consumer initiated outside of the XYZ touch point. The consumer may simply be an industrious rate shopper, submitting information on many mortgage Web sites, just to "see what would happen" (Isn't it funny that none of your borrowers ever admit to shopping multiple Web sites? They always claim to have visited just one.) Also, as an industry practice, many lead companies buy and resell leads from third party aggregators. This practice is sound if the participants in the supply chain practice discretion and a high level of business ethics. With a little technology and a breach of ethics, anyone in the supply chain can muddy the water by distributing leads upstream from where you access it. In many of these scenarios, exclusivity turns out to be a moot point.
Re-Visiting the Past
Obviously, the goal is to close more loans with as short of a sales cycle as possible. No one wants to work for a lower fee based on a bidding war. That being said, as the markets shift, it may not be as easy to find a truly exclusive, isolated prospect (other than that of a very close referral). Let me provide you with a somewhat humorous example: I was chatting with a loan originator client when she began to lament how her own brother had obtained a competitive quote on his mortgage! Looking back on the refinance boom between 1998-2003, many of our loan originator clients found that they could call one of our exclusive leads and find themselves as the only broker on the scene. However, that was a by-product of many other market participants being too busy to efficiently return calls and meet borrower expectations for timeliness. Whoever showed up on time got the deal. Exclusive leads never implied no outside competition, but it did imply that you could access the client in a slightly more relaxed fashion ... at times. The effectiveness seemed to be intact for a long period of time prior to the summer of 2003. Deal volume was so high from originator to originator that many leads where truly exclusive.
By July 2003, the market was jolted off its axis with interest rate hikes. A new reality sets in for the originator who once skated along with 10 to 12 closed loans per month during the previous three to four years and now struggles to register more than five loans per month. Instantly, for someone who plans to stay in the industry, return calls (and second return calls) must be accomplished. When a gravy train ends, a greater work ethic generally prevails, which is good news for the long-range participants. The easy-money originator must find something else to do. Many of you tell us you are fortifying your real estate agent relationships and paying more attention to repeat clients. On the grander level, large banks and brokers are spending more money than ever to access borrowers and maintain production. Loan volume and competition is obviously more difficult in 2004 than in 2003, especially if the refinance contraction that the Mortgage Bankers Association predicted plays out. The same lead campaign that was set up on an exclusive basis last year doesn't mean the same thing now. What to do?
Even as the pool of refinance prospects shrinks (based on rate "cycle-down") and the rates jump around like a ping pong ball, the good news is that on a return-on-investment (ROI) basis, real time and batch non-exclusive leads from reputable lead shops still make sense. However, a few changes to your mindset and monthly routine may be in order.
Picking Your Source
We all know that the front-end dollar cost is always an issue for goods and services. Heck, your borrowers constantly remind you of its relationship to your fee. The same thing goes for Internet leads. The market tendency and the advent of many low-cost lead sources allowed you to spend less for leads. That worked for a few years in the up market, but when July 2003 hit, the industry lead-flow velocity decreased severely, and the low cost producer couldn't produce. So, he recycled. It didn't take long for originators and brokers to figure that out. First, try to avoid placing the whole lead-buying decision on front-end cost. There are literally as many versions of Internet leads as there are loan programs. One size does not fit all. And, actually, using the numbers below as proof, a slightly more expensive lead source may prove to be less costly on the back end. If the price of an Internet lead sounds too good to be true, watch out. Specifically, if you are buying way below the $20 range for leads, make sure you know what you are buying since there is a slight Roulette game to that pricing range. Keep in mind that the numeric analysis of the least expensive leads fail to reflect a few intrinsic factors. Loan officer morals and campaign management don't present themselves in the numbers, but are definitely factors. Consider great customer service, an effective credit policy and reasonable loan types in addition to front-end cost.
Second, your expectation must reflect the times. How many loans will you close on a 100 lead delivery? This isn't just for Internet leads. You need that realistic expectation for direct mail, telemarketing and anything else in which you invest money. The days of cruising along with a 15 to 25 percent conversion rate are gone. Other barometers you may concentrate on are the marketing dollar cost per closed loan and ROI multiple.
Keeping a Tighter Grip on the Numbers
Lastly, know your lead campaign disposition numbers. On the 100 lead campaign being considered, keep an overview of the whole operation in addition to the last few leads received. It isn't uncommon for the success of a campaign to come from the first 10 percent of the total leads. It could also be that the conversion rate may be more balanced. Or, it may all evolve at the twilight of the campaign. Every lead source fluctuates. Keep the originators informed and force them to maintain coverage on every lead whether the data looks like a great deal or not. Let's take look at a quick proforma with a 100 lead campaign. Here is what you might expect, using a realistic six percent conversion rate:
100 non-exclusive lead campaign X $20-$25 = $2,000-$2,500
(Depending on campaign)
Contact rate: 70-80 percent = 70-80 leads
Conversion: Six loans, using an average $100,000 loan amount
Yield: More or less than $4,000 gross house intake per loan; $24,000 gross before rebates
Marketing dollar cost per closed loan: $333 to $417
ROI Multiple: 9.6-12 X ROI
No matter which supplier or lead characteristics you enlist to grow your business, make sure you pick your source properly, set a realistic expectation and keep a tight grip on the numbers. The aforementioned, combined with a good crew of hungry originators, will yield success on a consistent basis.