Powered by mortgage rates from Zillow Home Loans, BuyAbility tool could help listing portal’s lending affiliate get a head start on other lenders it competes with for borrowers.

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A new tool that lets homebuyers see how changes in mortgage rates affect the universe of homes they can afford could help Zillow execute a strategic shift to originating more mortgages itself rather than selling leads and advertising to other lenders.

The BuyAbility tool, powered by mortgage rates generated by Zillow’s lending affiliate, Zillow Home Loans, “will change the way people shop for homes,” the property search portal announced Monday.

Later this year, Zillow said buyers shopping for homes on the site will be able to use their BuyAbility calculations — which are updated when mortgage rates change — instead of a price range to filter for homes that fit their budget.

“BuyAbility is personalized to a buyer’s credit score, income and down payment, and updated regularly to reflect current mortgage rates, giving home shoppers a true understanding of their buying power,” Zillow Home Loans Senior Economist Orphe Divounguy said in a statement. “BuyAbility is a great starting point for buyers who may be hesitant to look under the hood of their finances, or share personal details with a loan officer.”

BuyAbility could also help Zillow Home Loans get a head start on other lenders in competing for business from homebuyers.

Zillow Home Loans originated $1.55 billion in mortgages last year, with purchase loan volume up 93 percent from 2022. While revenue from mortgage originations was up 8 percent, overall mortgage revenue declined by 19 percent, to $96 million, driven by a $28 million drop in revenue from outside mortgage lenders who use the site to buy leads and advertise their services.

“The decrease in our Custom Quote and Connect advertising revenue was primarily due to a 32 percent decrease in leads generated from marketing products sold to mortgage professionals,” Zillow said in its latest annual report to investors. “This decrease in leads was primarily driven by a decrease in demand for mortgages attributable to the higher interest rate environment as compared to the prior year period, as well as a shift in strategic priority as we focus on organic growth of our mortgage origination business.”

At $31 million, Q1 mortgage revenue was up 19 percent from a year ago, but represented just 6 percent of Zillow’s $529 million in total revenue for the quarter. Zillow Home Loans’ Q1 2024 mortgage originations were up 131 percent from a year ago, to $605 million.

“Zillow’s mortgage business is growing, but, counterintuitively, revenue is dropping as purchase volume nearly doubles,” tech entrepreneur and business advisor Mike DelPrete noted in a recent column in March. “This is a result of a shifting product mix — Zillow is funneling leads from its mortgage marketplace to fulfillment by Zillow Home Loans. It’s shifting from an asset-light marketplace to an asset-heavier mortgage brokerage operation, with much higher revenue potential.”

From a consumer standpoint, competition between mortgage lenders is healthy — and means it’s always a good idea to check rates with multiple lenders to compare rates and fees. That’s particularly the case for borrowers seeking jumbo, FHA or VA loans, the Consumer Financial Protection Bureau advised in a report last year.

Mortgage price dispersion by loan type

Disparity in annual percentage rates (APRs) offered in 2021 by top 20 lenders in each loan category. Source: Consumer Financial Protection Bureau

But according to a Fannie Mae analysis, about one-third of prospective homebuyers only get a quote from one lender — a number that’s hardly changed over time.

The CFPB offers a free mortgage rate explorer tool that allows borrowers to input their credit score, state, home price, down payment and desired loan type to see what the range of rates they can expect lenders to offer. Powered by Curinos, the CFPB tool tracks a mix of lenders including large banks, regional banks, and credit unions with data updated twice a week, on Wednesdays and Fridays.

Realtor.com’s mortgage tools include a rate finder powered by RateUpdate.com that lets users input similar data — credit score, location, home price, down payment and loan type — to see options from multiple lenders advertising on the site.

Homes.com provides a mortgage payment calculator with listings that’s prepopulated with the each home’s list price and estimated monthly property tax and insurance payments. Users must enter a down payment amount and a hypothetical interest rate to see an estimated monthly payment.

Mortgage product, pricing and eligibility engines offered by companies like ICE Mortgage Technology, Lender Price, MeridianLink, Optimal Blue and Polly make it possible for lenders to instantly generate personalized mortgage rate quotes to borrowers based on their credit score, down payment and other factors.

Lead generation sites like Bankrate, LendingTree and NerdWallet employ the same technology to provide mortgage rate quotes to borrowers from multiple lenders.

The CFPB has warned operators of mortgage rate comparison platforms to use neutral criteria like the interest rates and fees charged by the lender when presenting options to borrowers, rather than favoring lenders that are willing to pay the most for leads.

“Given the rise in mortgage interest rates, it is even more important for homebuyers to shop and compare loan offers,” CFPB Director Rohit Chopra said in announcing new guidance last year. “We are working to ensure that online platforms are not manipulating their search results in order to coerce kickbacks from lenders.”

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Email Matt Carter

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