“We’re seeing lead costs move higher across the board,” said Praveen Chandramohan, senior vice president at Cotality Mortgage Data Solutions. “Because the ban removes a large, low-cost data source, lenders are reallocating these budgets to bid-based environments.”
Chandramohan said that competition on platforms such as Googling Third-party ads and lead aggregators increase the cost per lead. He estimates that the cost of internet leads on some platforms has increased by about 45% year over year.
“Lenders are now paying a premium to secure first-party intent as this will soon be one of the few legal ways to acquire new customer data at scale,” Chandramohan added.
The leading pyramid
Industry experts describe the lead generation market as a pyramid. At the top are Internet-generated leads: the most expensive option, often costing hundreds of dollars each. Direct mail is in the mid-range: scalable but inconsistent in performance. At the base are trigger leads, which can cost as little as a few cents or dollars, with additional charges if a phone number is listed.
If the trigger lead layer disappears, companies will be forced to compete for a limited supply of alternatives. For example, the number of consumers actively completing online forms is finite, meaning costs are likely to rise.
“There are more people looking for fewer goods and so prices are skyrocketing. I would expect lead prices on the Internet to increase significantly because this is one of the few areas where a consumer is actively asking to be called,” said Drew Warmington, founder of iLeads.
Bank rate described this as “a shift to a focus on quality.”
“Because we are not dependent on the trigger lead supply chain, our prices remain stable while the rest of the market faces a supply shock,” the company said in a statement. “As the ‘junk’ supply of unsolicited leads disappears, lenders are aggressively reallocating their budgets to Bankrate’s allowable organic search and market traffic. This increase in demand for high-intent, vetted consumers could likely drive a premium on lead costs across the industry, simply because Bankrate’s ‘hand-raiser’ model is now the only viable path forward.”
Patrick Brennan, head of government relations at Credit boom – who supported the legislation – said that “overall the quality and value of a lead to the end user will be much greater.” According to him, limiting trigger leads should create a more favorable consumer experience, one that ultimately brings more high-intent consumers into the marketplace.
Who benefits from the restriction?
The legislation received widespread support in the mortgage industry, with proponents pointing to the hundreds of phone calls and text messages borrowers can receive after applying for a home loan.
Bob Broeksmit, president and CEO of the Association of Mortgage Bankers (MBA), called the measure “a major victory” that will “protect” consumers from “the barrage of unwanted calls, texts and emails.”
Vendors in the credit reporting industry argue that the restriction on pre-screened consumer reports mainly benefits large lenders and service providers, potentially limiting homeowners’ ability to obtain better prices. While they oppose abusive practices, they note that the use of such reports is already governed by federal and state laws, including the Fair Credit Reporting Act and the Telephone Consumer Protection Act.
“Limiting the use of these tools to lenders with existing customer relationships could unfairly favor the largest lenders and servicers, while potentially leaving out small community lenders and mortgage brokers,” said Dan Smith, the bank’s president and CEO. Consumer Data Industry Association (CDIA), which proposed a legal restriction targeting telephone calls.
On the supply side, credit reporting companies will now weigh the benefits of selling pre-screened reports to a smaller market against the associated costs and liabilities, sources said.
The three big agencies – Equifax, Experian And TransUnion – didn’t respond HousingWire‘s requests for comment. There is still some confusion about how the legislation will work in practice, these sources said.
‘High and dry’
The impact of the bill is expected to vary by business model.
Banks, credit unions and service providers will still be able to use triggers within their existing portfolios as a defensive tool to retain customers. Distributed private lenders and brokers, which typically rely on local referrals and derive less than 5% of volume from trigger leads, will likely continue to focus on referral partnerships, Chandramohan said.
Direct-to-consumer and call center operations, on the other hand, face greater disruption, as trigger leads can represent anywhere from 10% to more than 30% of total lead volume. Chandramohan added that these companies are shifting their spend to online advertising, high-intent first-party leads – both exclusive and shared – and proprietary lists built through predictive models.
“Triggers are used by virtually every lender I know, from big box stores to single agent brokers – and I’ve been in mortgage marketing for 30 years this year,” Warmington said. “Honestly, I think there will be a lot of chaos in the industry.”
Warmington added that some mortgage lenders and lenders could suddenly find themselves “strapped and dry” after years of relying on trigger leads – even as he acknowledged that abuse of this tactic has been harmful to consumers. He described the disruption as an “unintended consequence of legislation.”
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