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Many in the industry have probably been wondering how Greg Schwartz, former Zillow Group executive and founder of digital mortgage startup Tomo, came up with the unique name for his new company. Inman News Founder Brad Inman is among them.
“It’s a magic term,” Schwartz told Inman during a conversation at Inman Connect on Tuesday. “Standing on a track platform in Japan, wowed by the experience and the service, I pulled out my iPhone and started looking up Japanese service and it’s called ‘omotenashi.’ [It’s] this theory of Japanese exceptionalism in service. The first four letters of omotenashi are Tomo, backwards.”
“Wow, well that’s really deep thinking there dude,” Inman said in awe.
Inman and Schwartz went on to talk about the mortgage industry — its problems, its key players and its future.
“I think a lot of people are befuddled by all this money going into mortgage and how it affects the everyday agent and the industry in general,” Inman said.
He noted that private venture capitalists on Wall Street have been putting money into mortgage (in Inman’s words, they “drank the Kool-Aid”) and wondered if Tomo and other mortgage companies like it were similar to another disruptor in the real estate industry, Compass, in its manner of swooping in and gathering capital.
“Are you all really just like Compass? Compass just grabbed share in real estate and you’re grabbing share from Bank of America and Wells Fargo and mortgage,” Inman wondered.
Schwartz said that Tomo and companies like it were just an effort to make a pain point in the industry faster, cheaper, easier to deliver digitally and more predictable.
“The mortgage is the catastrophe of the real estate transaction,” Schwartz said. “It’s like going to the DMV.”
“It’s complicated, it’s expensive, it’s slow, it’s traumatic and the experience isn’t good, and there’s never been greater profits in the mortgage industry,” he added. “That’s what technology and innovators are supposed to go in and disrupt.”
Inman pointed out that mortgage qualification was one of the most painful processes in the industry — “they treat me like a common criminal,” he said — and wondered what was being done about it.
“I know one day, you will give your social [security number] and a property address and you’ll get an instance approval,” Schwartz said, noting that this solution was still probably 10 years into the future.
“[Regulators are] starting to allow us to aggregate your income, your assets and your credit,” he elaborated. “It’s called ‘CIA’ … we’re allowed to start to get them digitally, not through scanned or email documents. That’s a massive change.”
Inman and Schwartz also discussed how individual mortgage brokers can be great people to work with, but the consumer problems and frustrations often arise because of the greed of big institutions. Schwartz said one of his current loan officers used to work for one of the three top banks in the country, where he eventually got fed up with the fact that 100 percent of his purchase loans ended up missing their contract dates because of the poor management of the company.
“This starts with leadership and intent,” Schwartz said. “It can be way better today but folks chase volume over quality and execution.”
“Those institutions are so big, they can’t see anyone anymore,” he added.
With mortgage brokers still playing a significant role in the industry, Inman wondered how it was truly transitioning to digital.
“People still want to be guided by people,” Schwartz explained. “What digital is all about is the back end.” He added that digitization on the back end ultimately cuts costs of borrowing, and reduces mortgage rates because mortgages will be cheaper to produce.
Inman also confronted Schwartz about how mortgage brokers get paid, and what their salary structure looks like, something he argued was completely opaque to the average consumer.
“Despite regulation, despite transparency, I don’t think the public knows how brokers get paid,” Inman said.
“I don’t know if the consumer does understand or needs to understand,” Schwartz said, “but I’ll tell you how we get paid. I pay people living, healthy wages. It allows them to come into the office with great benefits and feel safe. Which means 70 percent of our comp is in base salary. No one does that. And then I hold them accountable to do the right thing.”
Schwartz explained that big lenders are using about 1.5 to 2.0 percent of a mortgage as compensation that goes to brokers and their managers. At Tomo, on the other hand, the company only takes about 0.3 percent.
He added that Tomo operates a kind of partner model with real estate agents where the company “looks for the most productive, highest service agents and we commit to them … and they want to work with us. We don’t pay them a stitch, federal law prevents that.”
“We’re totally rebuilding the underwriting process with our own technology to do it fast and consistent without drama,” he added.
Other companies like Knock and Homeward operate on a “as good as cash” model, Schwartz explained. “When you’re going head to head with an investor, the theory is: make the offer cash, give up the contingency.”
Another model used by some bigger players in the industry like Better, Quicken and Zillow is where these companies hire their own real estate agents and loan officers to work together, which Schwartz argued, “alienat[es] the traditional real estate community.”