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This past weekend, the U.S. Senate passed the Homebuyers Privacy Protection Act, H.R. 2808, without amendment and by unanimous consent. It is all but certain to be signed into law by President Trump in the near future.
Mortgage Trigger Leads
This act effectively prohibits credit bureaus from selling “mortgage trigger leads” to (most) other lenders. Mortgage trigger leads happen when a mortgage originator working with a client does a hard credit pull as part of the pre-approval or origination process. The credit bureaus sell the information that a hard pull was done, and then those lenders contact that client with offers of their own to try to poach the origination.
Sometimes those other lenders “play shady” (there are plenty of stories of impersonating the original lender to the client out there), and even if they don’t, the client is likely to experience a feeding frenzy of offers — much of it unwanted most of the time.
On the other hand, sometimes one of those competing offers is a better deal, and a client who was not otherwise going to shop around for the best deal gets the benefit of it. I could opine on the tradeoff (consumer privacy vs. mortgage competition) from a public policy perspective, but the act/law is what it is. The rules have changed who wins, and who loses.
Who Wins?
The future Rocket Companies / Mr. Cooper merged entity certainly will win. Post-merger, the company will be the largest holder of MSRs (mortgage servicing rights) in the country.
A key part of the value of an MSR is the origination recapture value. When you service a loan, you are in the uniquely best position to know when it makes economic sense for a client to do a rate and term refinance. You know all the details on that client’s loan, including servicing history, and likely have a reasonably current credit score.
Effective originators like Rocket watch their loans like a hawk each night, and the moment that prevailing market rates put a borrower enough in the money that Rocket thinks they will bite on (and qualify for) a rate/term refinance, you can be assured they will be getting a call with an offer to refinance.
Other lenders just won’t have the same level of information as the servicer and will have to rely more on general marketing/brand awareness — and the hope that the potential borrower reaches out to them (or someone else, like the LendingTrees of the world from whom they buy lead flow, does).
Previously, though, other lenders could also purchase the hard credit pull signal. Most refinances (all GSE refinances and some VA/FHA) require a hard credit pull, so other lenders had a chance to contact that borrower in the hopes of poaching them by offering a better deal on the refi. The servicer/originator could combat it by encouraging the refi client to opt out from receiving offers from other lenders, but not all clients will do that — and even if they did, it never perfectly prevented those offers.
But now, the other lenders generally won’t be able to buy the trigger leads at all, with four exceptions:
- The lender originated a current mortgage with the borrower;
- The lender is the servicer for a current mortgage with the borrower;
- The lender is a bank/credit union with whom the borrower has an account; or
- The lender has received the borrower’s consent.
The field of potential refinance poachers from the hard credit pull thereby thins significantly. If the current servicer of the loan also originated the loan, a pretty common thing in Rocket’s portfolio, the competition pool likely thins to just the banks of that borrower — who mostly aren’t very good at, and haven’t been super interested lately, in originating mortgages.
This reduced competition provides increased pricing power for Rocket and other large servicer/originators since they have far less to fear from competing offers, and generally increases the likelihood that the servicer/originator will “recapture” the loan with a new origination.
Once this new legislation is enacted, note also that since the current servicer, originator, and bank of the borrower can still buy mortgage trigger leads, they can still try to poach pending originations from other lenders/brokers on, say, new purchases or cash-out refinances resulting from loans in their own portfolio.
In terms of who wins, the more loans you service/have originated (or if you’re a depository with a large customer base), the better. Depository originators are also theoretically big winners, if they can keep the shoelaces on their mortgage origination operations from being tied together.
Who Loses?
The obvious first loser is the credit bureaus that will lose revenue from reduced selling of these leads.
Originators and brokers who have no previous relationship with a potential client and use mortgage trigger leads to identify potential clients are also obviously big losers, since that portion of their business model is now void.
I think brokers in general lose from this, even if they aren’t using mortgage trigger lead flow to identify clients. On the one hand, brokers’ clients won’t potentially face the feeding frenzy of competing offers after a hard credit pull.
But the offers from those two or maybe three entities that can still purchase those leads for that borrower will now stand out when they would previously have been lost in the noise. Those offers will be from entities the client already has relationships with, so hearing those offers — particularly if they are better — may be all the client needs to jump ship.
It may also become a tougher sell for brokers to convince clients to opt out from offers when it won’t be a feeding frenzy going forward.
By extension, the wholesale lenders that cater to brokers such as United Wholesale Mortgage are likely to lose from this as well.
How Lenders And Brokers Should Respond
If I were running a lending shop, I would actively solicit the consumer’s consent (opt in) to buy this lead flow with a marketing campaign something along the lines of: “Your servicer will at some point try to refinance you when mortgage rates drop low enough. Allow us to be your ‘second look’ lender to make sure you are getting the best deal possible.”
Perhaps also tie that consent in with some other non-mortgage benefit you might provide (in Rocket’s case, Rocket Money would make sense).
As for brokers, they should make capturing client consent for mortgage trigger leads part of their origination process.
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