Yesterday morning in Palm Desert, CA a number of technology startup companies were shown to the public for the first time at the DEMO Conference. One of these new companies was an Internet mortgage startup called home-account.com (don’t forget the dash). Home-Account was born in my kitchen in Charleston just over a year ago – long before any of us realized the housing crisis was going to be as bad as it has become. Just to be clear, I am a co-founder and shareholder in Home-Account.com.
People with ideas are always seeking me out. In this case my visitor was a mortgage broker from Charlotte, NC. He knew that lenders weren’t helping homeowners own their homes as quickly as they might. Simply put, it was in the interest of the lender to keep mortgage holders owing as much as possible for as long as possible, with each refinance generally starting the game all over again. There had to be a better way, but that way also had to still support the broker and his family.
So he created a subscription service with a flat $1500 fee. With that payment up front the broker would work with homeowners as long as he was needed, helping them to refinance their homes again and again at little or no cost as their fortunes improved and interest rates could be driven down.
And it worked. Gaming the mortgage system by planning several refinance events ahead, it was possible for those homeowners in Charlotte – 600 of them over seven years – to save an average of $400 per month on their mortgage payments, own their homes quicker, and pay an average of $175,000 less in mortgage interest as a result.
Remember this is real money we’re talking about. $175,000 is more than the average American personally saves for ANY reason. It is more money than they save for retirement and more than they invest in the stock market. This means that taking this new approach to buying their home can be the most important financial decision of most people’s lives.
Home-Account just takes that analog process developed in Charlotte and makes it digital and national. And because it is cheaper to use computers than telephones and Home-Account has a chance to serve all of America’s 52 million mortgage holders, that one-time $1500 subscription payment could be dropped to the present $10 per month.
It’s a heck of a deal.
And it’s also a lot harder to do than it looks. Home-Account is effectively a customer-driven automated mortgage underwriting system – the first such system EVER built. If you’ve shopped for mortgages on the Internet maybe you thought you were using such a system, but you weren’t. The difference is key: while those guys say you MAY QUALIFY for a certain mortgage at a rate that somehow later always goes up, at Home-Account we say you ARE APPROVED and the rate is LOCKED. There are never any added broker points or Yield Spread Premium – a term for extra interest payments that go to the broker.
Loans recommended by Home-Account are the cheapest you can get. If ours looks more expensive than theirs it is because theirs aren’t real.
Where those other Internet mortgage sites hand you over to 25-50 banks or brokers who are paying for your lead, Home-Account doesn’t sell you to anyone, instead offering-up to the homeowner or home buyer a handful of real mortgages that we know are the best you can qualify for based on your situation. The lenders get pre-packaged loan applications ready to be funded and they get them FOR FREE, because Home-Account takes no money from anyone except its subscribers.
The service was announced yesterday morning, gaining some press and a lot of interest but also two important questions were asked again and again:
1) Why should homeowners or those about to buy a house subscribe to Home-Account for more than one month?
2) How do you make enough money charging only $10 per month?
That first question is pretty compelling. Why not pay $10 for the first month, finance or refinance your house saving an average of $3500 in broker fees and closing costs, then just drop the service, saving that $10 per month in the process?
The answer starts with the fact that many people in the current economy won’t qualify AT ALL for a loan. If you already own a home and have a mortgage, keeping the one you have may be the best advice. And it is the advice you’ll get from Home-Account if that’s the case. But don’t expect the same from any other Internet mortgage site because they will ALL try to drag you into some kind of transaction whether it is in your interest or not. That’s because they work for the lenders and only Home-Account works for you.
If you don’t qualify we’ll tell you that, but we’ll also tell you what you need to do to become qualified. The more financial information you give us the more we can help. We’ll teach you how to improve your credit score, literally telling you which bills to pay off first and how much to pay each month. Home-Account monitors your progress and keeps you on-track. It’s precisely the kind of service I wish my parents had bought me as a gift when I was first on my own a zillion years ago.
People with better credit who qualify immediately for loans at Home-Account then drop out can’t take advantage of the strategic advice that’s at the heart of the service. THEY WON’T save $175,000 in interest charges. That requires following a multi-year strategy. They may not even get the very best deal on that initial loan because we might be able to help them quickly improve their credit score enough in a month or two to get a lower rate.
Listen, a big reason we’re in this global financial mess is that people took on more debt than they could handle, at least in part because they really had no idea how much debt they could handle. Most people don’t know where they stand financially. At least half of what Home-Account does is help subscribers get a handle on their largest expenditure, their mortgage, after which the rest of a subscriber’s finances just tend to fall into place. Who — once they had that clarity about where they stand financially — would give it up just to save $10 per month?
If that’s not enough reason to maintain a subscription maybe it would help to know that services very comparable to LifeLock (ID theft prevention) and MyFICO (credit score management and optimization) come as part of the subscription for no extra cost. We don’t add them on: they are part of how we do what we do.
It is our hope that enough people recognize the long-term value of this service to subscribe and stay subscribed.
Yeah, but how do we make money? Home-Account appears to be disintermediating the entire mortgage broker business and $10 per month seems a poor trade for $3500 per loan in lost fees.
That depends on who you are. Home-Account is loyal to homeowners and would-be homeowners and for that group the $10-per-month trade for $3500 in fees is GREAT. And it’s not all that bad for Home-Account, either. What we do is complex but it scales well. We have costs, but they go down with volume. There are 52 million potential customers in the U.S. alone so we have plenty of room to grow.
The best way to understand the Home-Account business model is in light of a comparable business. Our preferred comp is PayPal. Both are Internet financial sites serving markets of comparable size. And where PayPal’s gross revenue per customer last year was $14.17, Home-Account’s revenue per subscriber is $119.40.
We can live with that.