These days, the easiest way to get a bank to give you a mortgage may be to get a mortgage from someone other than a bank.
About 115 million people probably saw Quicken Loans’ ad for its Rocket Mortgage service during the Super Bowl. The ad suggested that you can secure a mortgage with just a few clicks on your smartphone screen. That claim is something of an exaggeration, but Quicken Loans has vaulted to become one of the top five mortgage lenders in the country by size largely by making it as easy as possible for borrowers in all 50 states to apply for a loan. Rocket Mortgage is merely the next step in that business plan.
At the other extreme, in the once-again-booming housing market in South Florida, the largest locally based financial institution, BankUnited, recently announced it will stop making residential mortgage loans altogether. The regulatory environment is just so onerous, according to BankUnited, that the business is no longer worthwhile. While borrowers in metropolitan Miami still have plenty of other places to seek loans, observers believe BankUnited will not be the last financial institution to pull back from this line of business.
So what is the difference between Quicken Loans and BankUnited?
The biggest is that Quicken Loans is not a bank, which means that federal authorities have fewer available strings to pull to force the institution to do their bidding. Moreover, when the feds did come rapping at Quicken Loans’ door, demanding a “nine-figure settlement,” according to the company, for the alleged sin of making federally insured loans to financially shaky borrowers, the lender fought back, something almost no conventional financial institution is willing to try.
Quicken Loans turned around and sued the Justice Department and the Department of Housing and Urban Development for attempting a prosecutorial shakedown. And though that suit was thrown out of court, Quicken Loans continues to raise the specter of false accusations on the government’s part in the ongoing Justice Department lawsuit. According to the lender, only 55 of the approximately quarter-million transactions insured by the Federal Housing Administration that it generated between 2007 and March 2015 were bad loans. Further, Quicken Loans has said it has already demonstrated that the feds simply misunderstood the facts in all but eight of these cases.
Banks have been conditioned, at this point, to fold under regulatory pressure. Quicken Loans, which is not a bank, seems prepared to keep pushing back against the Justice Department for the foreseeable future.
This brings us back to the Super Bowl ad in question. The commercial promoted the lender’s Rocket Mortgage service, suggesting that making it easier to secure mortgages will boost the housing industry as a whole, which in turn will boost the entire national economy as those new homeowners fill their homes with appliances, furniture and other products. In other words, everybody would benefit if the process of securing a mortgage were simpler.
“And isn’t that the power of America itself?” the ad asked.
The TV spot created some immediate pushback. Critics claimed Quicken Loans wants to take us back to the bad old days of the housing bubble. To a point, their fears are understandable - not because Quicken Loans is trying to do anything wrong, but because when a 30-second Super Bowl spot costs up to $5 million, there is not much time for nuance.
For those worried about another housing meltdown in the ad’s wake, Quicken Loans has been quick to clarify that Rocket is designed to streamline the mortgage application process, not to make risky borrowers look safe or to jettison due diligence. Product lead Regis Hadiaris told MarketWatch, “The intent is not for everyone to use Rocket Mortgage and not ever talk to a mortgage banker.” To that end, the company has bankers available to talk to applicants to answer questions during the otherwise automated process.
Even with Quicken Loans’ streamlined procedures, you will never get a mortgage instantly on your smartphone. In fact, the company’s claim is not “instantly,” but “as little as eight minutes.” Eight minutes is technically possible because Quicken links to online systems maintained by Fannie Mae, Freddie Mac and the FHA, necessary for the final steps in the approval process. Yet steps outside the applicant’s control, such as the appraisal, means that expecting eight minutes is unrealistic for most borrowers.
Still, Rocket Mortgage does offer some real conveniences, such as the ability to import paystubs and bank statements directly and streamlining a “to-do” list of outstanding steps the borrower needs to take. With efficiencies and economies of scale, Quicken Loans can probably deliver on its promise to shorten the due diligence period, potentially to a couple of weeks from a couple of months. That would still be a big step forward.
But as BankUnited has demonstrated, these days you have to be a big player to even take that step. Everyone else is inclined to clear the field.