After just five months of officially entering the mortgage market with the introduction of Zillow Home Loans, Zillow Group is stalling. It appears that developing its mortgage platform is taking longer than expected.
Zillow CEO Rich Barton announced recently that the company would slow hiring for Zillow Home Loans until the software is ready to launch.
“…we are building new proprietary technology to streamline and integrate home loans as our payments platform for Zillow Offers,” Barton commented. “We’re already testing the initial version of our digital mortgage software, but the rollout is taking a bit longer than expected.”
While Zillow’s second-quarter earnings show an increase of 40% from last year, this recent announcement could hinder their near-term performance. Zillow themselves lowered their proposed expectations for the division to $15 million for the remainder of the year, a reduction of $10 million.
Why get into the mortgage game in the first place? Barton explains that the end-goal is to use to finance the transactions they develop through their iBuyer division with Zillow Home Loans.
Zillow Offers gives home sellers the ability to get an instant offer for their home and sell it to the company within a few weeks. This service is already successfully launched in several key markets across the US.
By combining Zillow Offers with Zillow Home Loan, the Zillow Group could potentially close thousands of loans a month, skyrocketing their mortgage division.
However, not everyone is optimistic.
Steve Eisman, the Neuberger Berman portfolio manager who famously profited during the financial crisis by betting against subprime mortgages, criticized Zillow’s business model.
Eisman explains that Zillow’s business model of buying homes to flip them is flawed. “I actually think the company doesn’t understand the real risks of this business, which are massive.”
Zillow Director of Corporate Communications Emily Heffter commented that the “demand from consumers for our Zillow Offers service is overwhelmingly positive…We remain confident in our long term strategy to create a seamless, integrated real estate transaction for consumers.”
Thus, even after successfully developing the necessary mortgage software, Zillow Home Loans could continue to experience delays and losses.
