Real Estate

Why Is About Much More Than Mortgage Rates

Before announcing a $100 million Series A funding round in June and a naming rights deal with Major League Soccer team the Columbus Crew, Lower LLC had been keeping a relatively low profile as a bootstrapped direct mortgage lender.

But there’s a backstory to Lower that helps explain why the company believes it can now position itself as not just a lender, but “Everything for your home, for Lower.”

Lower LLC CEO Dan Snyder got his start in mortgage lending at a small depository bank, before cofounding Maryland-based mortgage lender and servicer Homeside Financial in 2014. Homeside Financial and its associated brands, which remain under the Lower Holding Co. umbrella, have funded more than $14 billion in loans and provide Lower with a channel partner network of builders and real estate agents.

The 2018 launch of provided a direct mortgage lending channel with a more streamlined, digital process that the company says appeals particularly to millennials.

“We want to be that first look for that millennial homebuyer who doesn’t know how it works,” Snyder tells Inman. “You want to buy a house, you’re sick of renting, you can go on, and we’ll lower your stress. We want to be the number one reducer of homebuyer anxiety in the country.”

A landing page aimed at Reddit users, for example, promises to “make you a homeowner” in “just five simple steps.”

“Mom and dad need to get their sh*t together,” says a toddler depicted in one of the steps. “Even I know our DTI ratio.”

In May, Lower announced a mobile app, HomeFund, that allows consumers to open an interest bearing FDIC-insured deposit account to save up for a home, and earn a dollar-for-dollar match on the first $1,000 saved.

By providing bundled services as a lender, loan servicer, insurance broker, and deposit account, Lower says it’s able to help more buyers and owners.

“We’ve been at it for the better part of seven years, and doubled every year in whatever metric you want to look at — from volume closed, to revenue — and grew it profitably along the way,” Snyder said. Last year the company as a whole, including HomeFund, originated $5 billion in loans, and this year expects to fund $9 billion.

Agent referral platform coming in Q1 2022

To help keep growth on track next year, the company’s real estate brokerage arm, Lower Realty LLC, is planning to launch an agent matching service for homebuyers during the first quarter of 2022.

In matching consumers with agents, Snyder says Lower’s philosophy will be to “optimize for the process and the experience,” taking into consideration factors like the type of property a homebuyer is interested in and how available agents are.

“We want to make sure they’ll get along together,” Snyder says. “What we’re building out is a little bit more of a situation, behind the scenes.”

Snyder says Lower is currently in a beta mode with agent matching, with 1,700 agents in a network spread out across the country from Tampa, Florida, to Los Angeles.

“We don’t have enough agents in our network, candidly — it’s something that we really need,” Snyder said. “We’re getting the word out some … and we’re looking to make big headway in the next quarter.”

Top mortgage lenders like Rocket Cos., loanDepot and Better have all branched out into real estate brokerage and title insurance in order to provide bundled, end-to-end services to homebuyers. But Snyder said his company can stand out by incubating the next generation of homebuyers, and simplifying home ownership.

“It’s not like it’s a groundbreaking idea,” Snyder conceded. “There’s been bundling of services in lots of verticals for years. You’ll go along with bundling if it does two things: It’s cheaper, and it’s more convenient. So the execution has to be off the charts. And I think that’s where we differentiate.”

Rather than trying to make big profits on each component of a transaction, “We can make less on all, and we get a pickup on experience,” he says. “So you’re seeing a migration to that — there are some other folks doing that type of thing. We just hope to win on execution.”

Snyder says he thinks competitors aren’t “knocking the cover off the ball as it relates to service,” and that Lower has an edge in simplifying homeownership.

“Rocket, they’ve been around for decades, so it’s harder for them to move with the newest technology,” Snyder claims. “They’re now like Wells Fargo. And Wells Fargo’s got a lot of bundling and a lot of stuff, but it’s Wells Fargo.”

Build technology in-house, or partner?

To make sure everything is seamless from the customer’s point of view, Lower develops much of its technology internally, although it’s not afraid to partner on products like its HomeFund app.

HomeFund is built on an API-based payments processing platform provided by Galileo Financial Technologies, with accounts held at Evolve Bank & Trust in Memphis, Tennessee.

“We really want to build and own anything that’s consumer facing, because that’s our bread and butter. We are going to live and die by the execution of that experience,” Snyder says.

So Lower partnered with Galileo to provide the “middleware” for HomeFund, an API layer that connects a Lower-built custom front-end to the partner bank.

“We aren’t really interested in being an actual bank — we’re a mortgage bank, we’ve got an incredibly strong balance sheet, but we’re not storing deposits,” Snyder says. “But we do want to control the experience.”

Lower also build its own custom doc portal to facilitate uploading of all the documentation associated with a mortgage loans, because “we didn’t see anything on the market that was even as close to being as compliant or as easy to use as we wanted.”

“What I think you’ll see more from us, is building more of those core components to speed the process up for our own team members, instead of going and using vendors,” Snyder says.

Navigating compliance issues

Providing bundled services does open up some compliance issues. Rocket disclosed that last year the Consumer Financial Protection Bureau was looking into whether its real estate brokerage arm, Rocket Homes, “conducted any activities in a manner that violated” the Real Estate Settlement Procedures Act, or RESPA.

Rocket has since announced that in addition to providing referrals, it’s hiring in house agents. Better is doing the same. Snyder says it’s well aware of potential RESPA issues and able to navigate them.

“We’re not a brand new, real estate fintech startup with no background on RESPA and the complexities of it,” Snyder says. “We are the opposite of that. We approach this thing with compliance in mind. I just literally came off of a Zoom call — a huge opportunity for us — and our general counsel, who is a 30-year veteran, is on the introductory call. Because a lot of these things, you really need to go into it with your eyes wide open.”

Lower’s motivation for providing agent matching is “to help ease the pain of the consumer, who’s coming to us, and say they’re buying a second home in Colorado, and they live in Philadelphia — they have no idea what the landscape of that market is. Instead of going to Google, and trying to figure it out on their own, we’re just linking them up [to a real estate agent]. It’s different than some of the big standalone companies like Homelight. We’re just linking them up to a Realtor. It’s up to their choosing. But it operates as a completely separate entity and company.”

With the mortgage market expected to make a big shift from refinancing to purchase mortgages next year, lenders are eager to partner with real estate agents to build that side of their business.

Snyder says that if you include Homeside Financial in the mix, purchase loans already account for 60 percent of Lower’s business, and historically it’s “closer to 70-30” purchase to refi.

On the direct to consumer side, “we’re almost 50-50 purchase to refi, which is almost unheard of, because of how hard it is to do a purchase transaction” from a central location, Snyder says. “What we’ve found is a lot of it has to do with making sure the organization is geared for the purchase business. There’s time frames, and complexities, and you cannot close loans a day late. Then moving trucks are impacted.”

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