Marketing Insights: Mortgage & Equity, Q1 2016

Financial Services Marketing Insights SeriesAs the market moves toward a purchase-based mix, some traditional mortgage companies are seeking growth outside the singular mortgage product set. To that end, Quicken Loans and Loan Depot recently took advantage of the success of peer-to-peer (P2P) lenders and started offering personal loans. The personal loan market has been steadily growing since it hit bottom in 2010 after the financial crisis, and the demand for these loans and the supply of capital has been growing stronger. It's difficult to predict how much longer this trend can continue; some P2P lenders have recently reported credit issues, which is likely less an industry issue and more a learning experience one.

Additionally, more lenders are starting to offer home equity loans, which we observed prior to the housing "bust," but nowhere near those levels. Broadening the product offering makes sense for the short term, but the secondary market for these products is not as liquid as the mortgage market, and there may come a time when the market tightens up... if that happens, these products can shut down overnight without reasonable access to capital. This will not be the case for banks that offer personal loans and home equity loans in part with deposits.

For typical mortgage mono-lines, personal loans and home equity lending are not a long-term strategy unless they are on the bank path. For instance, consider what happened to the credit card mono-lines: they either disappeared (Providian) or became part of a bigger bank (Capital One). At the very least, these mortgage players should maintain the personal loan business as a small percentage of their overall business while staying focused on building their purchase mortgage experience to meet the expectations of millennials and new home buyer segments. Quicken seems to be doing well with both priorities with the recent launch of Rocket Mortgage. Conversely, it would be wise for the P2P lenders to consider broadening their product offering in the direction of the mortgage lending business. Moving in that direction, to a more stable and liquid market, seems to make sense for the long term.

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