It begins with how we structured the company, its technology, and, more importantly, our origination model.
First, look at how traditional mortgage companies operate. When you dive into their operations, you see two major costs: labor and marketing.
A large mortgage company consists of thousands of underwriters, processors, and, of course, loan officers. These are labor-intensive operations. The good news for them is that the back end is becoming more automated. Advances in document collection through services such as Plaid, along with underwriting algorithms, will continue to create efficiencies. But these companies are still built on legacy infrastructure, so the shift is happening slowly.
Marketing falls into two buckets, and they are the most costly. Consumer marketing for a company like Rocket runs into the billions. That makes sense when you are selling a commoditized product like a mortgage. It means repeatedly hitting people over the head with a brand. Since borrowers are brand-agnostic, it is not surprising that marketing costs are so high.
The second is loan-officer sales. Loan officers are now salespeople more than anything else. Their main source of leads is Realtors, who refer more than 70% of mortgages. Realtors are the gatekeepers. Mortgage companies are therefore tied to LOs for lead generation, which is also incredibly expensive.
We operate differently. We vastly reduce our customer acquisition cost by going directly to the source of the leads: the Realtor. Our marketing can be laser-focused, not on broad branding campaigns or hiring armies of LOs, but on empowering Realtors to perform both roles without adding meaningful time to their duties.
Working directly with Realtors reduces the need for broad consumer marketing and loan-officer sales teams. Those savings are central to how we’re building the compensation model.
Shane