Rate Table Roulette

Barrier to entry is steep in this direct-to-consumer advertorial method

Sarah Wolak

Link copied

One effective strategy for attracting direct-to-consumer business is by promoting rates through rate tables. And it gives consumers a sort of upper hand in their homebuying – or browsing – processes. The tables serve as a snapshot of a company’s best rates and how they compare to others. But a lot goes into rate tables: quality control, advertising, and lead generation.

Adam Stein, managing director of Blue Sky Financial, formerly ran LoanTek, a pricing engine company that specialized in helping connect lenders advertising on rate tables with leads. Stein says that LoanTek drove the back ends of Zillow, LendingTree, and Bankrate before being sold to the latter. But what Stein emphasized is that he created LoanTek for a shopping experience which was in the hands of the consumer and was clear enough for them to understand on their own. “Think of it like how you shop on Amazon,” Stein offered as a comparison. “When you’re shopping for something commoditized, you compare costs from different vendors on the same platform. That’s how rate tables work.”

Gregg Harris, CEO and founder of LenderCity – a self-described lead generator and lending marketplace – also described rate table shopping as the Amazon of the mortgage industry. Harris decided to break away from advertising with Bankrate after 27 years and create his own rate table.

“There were nuances I didn’t like with larger rate tables like inaccuracies and misinformation, especially from the perspective of a lead buyer,” he explained. “Some rate tables were inaccessible because of costs. There’s a high barrier to entry.”

Harris wanted to build his own marketplace to customize the needs of lenders working with him. “Typically, [on other platforms] there is a minimum monthly spend, or you as a lender have to be licensed in multiple states, and you select those specific states to get leads from,” Harris said. “What we offer is to pen up the door for smaller lenders. There’s no minimum monthly spend, and you can set daily budgets and when you hit your budget, you get knocked off the table.”

Real-time, Real Cost

Both Harris and Stein say that even though rates are displayed in real time, there are risks to the game. “Quality control and policing the marketplace are really up to the rate table company,” Stein said. “The only room for fallacy is if the lenders are actually adhering to the rates that they offer, or not. That’s why sometimes companies are tested on whether or not they can prove their rates.” Stein added that rate tables are “driven by a pricing agent and the software can see the price origins from whichever investors are providing them.”

Harris says that for LenderCity, quality control is done by tech but always has a set of human eyes on it, too. He says that LenderCity runs various scenarios to make sure everything is accurate with a lender’s rate information. “Rate tables should be relatively seamless,” Harris said. “Aside from accuracy, It comes down to how competitive you are as a lender. The more competitive and lower the margin, the lower your rate and the higher your chance of landing business.”

“Think of it like how you shop on Amazon. When you’re shopping for something commoditized, you compare costs from different vendors on the same platform. That’s how rate tables work.”

Adam Stein

Consumer Attitudes

Like the market is cyclical, rate tables are too, which goes hand-in-hand with how consumers are approaching rate shopping. Stein says consumer appetite now just isn’t where it should be, and for that reason, lead generation via rate tables is on the slower side. “For example, looking at one lender’s offering on Bankrate, there’s one lender on here offering 5.6% or 5.7% with discount points of 2 points,” Stein said. “How many consumers really want to pay a 2-point discount? Probably not many.”

Stein pointed out that it’s difficult for lenders to get any positive returns on their investments in this market. “Last year when rates turned, it took 117 days from the time a person hit a rate table until they closed,” he said. “That’s four months before any return on the investment. And there was a ton of breakage in those that would go through because of interest rate complications.”

Stein says that it’s hard now to drive quality traffic or even gauge a consumer’s intent since customers are largely disinterested in the market. “I typically judge rate tables on the quality of the traffic and leads. But right now, lenders need to be careful where they’re acquiring [their traffic and audiences] from,” Stein warned. “It’s slim pickings for customers.”

Harris says that since LenderCity’s official launch date was June 1, he hasn’t seen the impacts of higher rates on his lenders yet since the table is in its infancy.

“Rate tables should be relatively seamless. Aside from accuracy, It comes down to how competitive you are as a lender.”

Gregg Harris

Competition to Boot

For Patrick Nolan, rate tables are also used as leverage during lower volume times. Nolan, who is a mortgage loan originator for FSB Mortgage, says that rate tables such as Zillow are a more often a source of information for a consumer to put in an exact loan scenario. “By the nature of the market, [rate tables are] slim profit-margin deals at the most aggressive rates,” he explained. “People who use rate tables are most likely not first-time homebuyers, they don’t need their hand held and they’re willing to explore and make decisions themselves. The buyer who shops and compares gets a better deal.”

Stein says that the competition is even tighter for lenders. “Other lenders competing against each other are probably tattling each other on competitive margins,” he said. “I’ve also seen a pattern of practice of lenders ratting out each other by saying another lender doesn’t offer those rates.”

“People who use rate tables are most likely not first-time homebuyers, they don’t need their hand held, and they’re willing to explore and make decisions themselves. The buyer who shops and compares gets a better deal.”

Patrick Nolan

And some lenders don’t need to compete. Nolan says that household names like Rocket are less likely to appear on rate tables since they don’t want to lose money on offering consumers lower rates. Nolan says it’s the mid-sized lenders – who aren’t household names – that use rate tables to come off as honest and trustworthy. “Up to 75% of consumers buying a house usually take the first mortgage offer without shopping. But if that same consumer were buying a car, they’d probably shop it to death to save even $500,” Nolan said. “The mortgage industry is well aware of that and they take advantage of people not shopping by presenting them with high rates.”