Record low interest rates and a spike in Americans relocating to cost-effective areas made 2020 a banner year for the lending industry. In fact, 90% of lenders reported year-over-year growth in our 2H2020 Mortgage Lender Outlook. Still, one lender stood above the rest when it came to sky-high profits.
Rocket Mortgage netted a massive $9.5 billion in profit last year, placing it as America’s largest lender by far, with 1.1 million originations in 2020. And its rapid climb doesn’t appear to be slowing any time soon. Rocket saw 153 million unique visitors in 2020, a 61% increase from 2019, and while some of that volume was driven by COVID-induced market conditions, its growth will likely continue in the foreseeable future.
What has driven Rocket Mortgage’s rise to success? In short, the company pins its growth on investments in technology and big data.
“As more and more consumers shift their preferences toward an increasingly digital experience, we are better positioned than ever to provide them with innovative, technology-driven solutions that simplify even the most stressful and complex transactions,” said Rocket Companies Vice Chairman and CEO Jay Farner in a statement. “Looking ahead, we will continue to invest in our world-class technology driven solutions that allow us to diversify our scalable platform business model.”
When studying Rocket Mortgage’s rise in the industry, it’s easy to assume that their automation-heavy approach represents the future of lending. The truth is, it’s a bit more complicated. There are downsides to the Rocket model, including a lack of face-to-face interaction with borrowers and an inability to build relationships during the highly consequential process of buying a home.
What can smaller lenders learn from Rocket Mortgage’s success? And conversely, how can they differentiate themselves to form competitive advantages the mortgage giant lacks? Let’s dig in to find out.
1. Modern technology matters to modern borrowers.
It’s no surprise that today’s home buyers expect the mortgage process to mirror digitally powered transactions they make in other industries. Driven by this demand, the lending industry is in the midst of evolution. This trend is only accelerating due to changes necessitated by the pandemic and the current flood of millennial home buyers, 70% of whom used a digital application process for their last mortgage.
Specifically, millennial home buyers expect:
—Seamless borrower experience enabled by technology
—A quick, transparent lending process
—Clear, regular communication from application to closing
—The ability to fill in information and upload documents across devices
—A singular platform that organizes all loan information
—Visual, immediate loan product and pricing comparison
Rocket Mortgage’s popularity largely stems from its end-to-end online experience. The shift in the lending market spurred by Rocket sends a clear message: Consumer demand for tech-empowered mortgage solutions isn’t going away any time soon. In fact, lenders who refuse to adopt modern point-of-sale platforms that provide an easy-to-understand process for borrowers may become obsolete in coming years.
2. Home buyers crave human support now more than ever.
Bob Walter, Chief Economist of Quicken Loans, the company behind Rocket Mortgage, once famously commented, “I think that branch loan officer is a dying profession.” Walter believes that lenders will continue to lose market share to online-based institutions like Rocket Mortgage if they continue to eschew technology and embrace traditional lending processes focused on human-to-human interactions.
While mortgage lending can absolutely benefit from tech upgrades, today’s borrowers actually report a surprising sentiment: Despite favoring modern digital mortgage platforms, they also strongly prefer human-led support and relationships while buying a home.
This sentiment is especially prevalent among millennial home buyers, who often lack confidence when it comes to financial literacy and the home-buying process.
According to Ellie Mae’s 2019 Borrower Insights Survey, 79% of millennial borrowers said that they meet frequently with their lender in person. That’s significantly higher than the 61% of baby boomers who reported the same.
Generally, millennials want support from lenders across channels, including in person, to assure them throughout the process.
“Borrowers continue to show a strong desire for more options for interaction and communication with their lender, as frequent communication across multiple channels between lenders and borrowers has increased by approximately 20% for those who took out loans within the last year, when compared to borrowers who obtained their loan in the last three to five years,” Ellie Mae reported.
With many of the 72 million millennials expected to reach peak home-buying age over the next few years, community lenders hold a strong potential advantage in educating and forming relationships with this demographic. By combining a tech-empowered lending process with human-based support, small to midsize players can seize an advantage online-only lenders like Rocket Mortgage lack.
3. There’s value in focusing on niche home-buyer segments.
There’s plenty of coverage on the rising market share of mega-lenders like Rocket Mortgage. The developing story that’s mentioned far less is the incredible impact that smaller community lenders have on homeownership access for underserved demographics.
Especially in rural communities, where around a quarter of the U.S. population resides, community banks and credit unions provide much-needed access to credit. In fact, community banks represent the only banking presence in almost one out of every five counties in the U.S. The physical presence of these institutions in communities across America make them the obvious choice for many of the nearly 74 million people living in rural areas.
These areas outside of city centers also include 15 million people of color.
Working with the GSEs, community lenders play a vital role in forming relationships with these underserved demographics and helping them into a home.
In 2016, the GSEs purchased over 2.4 million home purchase and refinance mortgage loans, including nearly a half a million loans to low- and moderate-income borrowers, over 450,000 loans to borrowers of color, and nearly 400,000 loans originated by community banks and credit unions.
While large institutions like Rocket Mortgage benefit from massive marketing budgets and widespread brand awareness, community lenders are quietly growing their market share in niche segments through relationships and referrals. By leaning into the trust they form with these home-buyers, small to midsize lenders hold an important key to expanding their customer base while improving access to homeownership across the country.
Competing against the industry’s biggest players
Rocket Mortgage’s continued year-over-year growth is undoubtedly impressive. While the popularity of their online-based services is yet another indication that the mortgage industry needs to evolve, their strategy also leaves room for community lenders to step up for borrowers.
If smaller lenders invest in the correct technology over the next several years, they’ll be able to lean into a powerful competitive advantage: forming relationships and trust with home buyers that translate into business, referrals, and market share.