Can Root Markets Succeed without the Broker and the Consumer?

Posted by Bill Rice on 10/9/07 in sales

Root Markets comes out from behind a long silence with yet another "plan." This one not so radical as Seth Goldstein’s version (past CEO) or different from past AOL plans (subscription). This time it is Yahoo and it doesn’t look so different from good old fashion display ad lead generation.

However, I think the most interesting part of the latest media blitz is who they leave out. They start building their master plan, as revealed on Investment Dealers’ Digest, by cutting out the mortgage broker (last I checked that was about 65% of the mortgage originations in the US mortgage market):

These days, Ranieri and Myerberg are back in the mortgage finance world with a new venture, an Internet business that links consumers directly with mortgage lenders, thrifts and commercial banks, bypassing mortgage brokers [emphasis added]. Called Root Markets Inc., the new business will be linked to Internet portals and newspaper sites.

Root Markets aims to simplify the process of finding a mortgage loan by directly linking consumers with the actual mortgage banks that will keep the loans on their portfolios or resell them into mortgage bonds. By linking the end buyers of a mortgage loan directly with borrowers, Root Markets hopes to bring down costs for home buyers.

And then Mr. Ranieri, recounts an anecdote, laying borrower woes directly at the feet of these same mortgage brokers.

Ranieri recalls fielding a call from a family recently. A nurse with five children and her husband had fallen behind on payments for a home financed with a negatively amortizing loan. Spotting the loan terms — specifically, the rising loan payments — Ranieri remembers wondering, "how the hell are you going to pay for this?"

"These are not bad people. They wanted a house with more bedrooms. They’re not stupid, but they’re financially not sophisticated. The broker sold them on the loan," says Ranieri, adding that he would not be surprised if some consumers eventually give up making mortgage payments because with home prices dropping even as their loan payments rise, they’ll have little incentive to keep on top of the payments.

Finally, Rick Grant makes another interesting observation about their omission of the consumer:

Myerberg appears to be in his [Seth Goldstein] office now and the company’s website doesn’t talk about consumers at all, just buyers of leads and the companies that sell them. Except for some little house icons on the screen, it doesn’t even seem to be specific to the housing industry.

A quick glance at the screencast video that describes the offering doesn’t mention consumers either. It appears to be a Web-based lead management system with some auction-type functionality built in that allows buyers to bid on leads.

Are Lew Ranieri and Marcia Myerberg building a marketplace that reduces consumers and their loan professionals to ticks on a market board? Will that work?

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1 Comment(s)

  1. LeadCritic | Oct 9, 2007 | Reply

    I can see what they are trying to do in many ways. They have obviously had few issues:
    1. Really getting the Root Exchange off the floor and perfecting their model.
    2. Like many lead-gen companies (I know they are not Lead-gen, but for sake of simplicity) have had a tough time acquiring good buyers and I think this has to do with their short tail stratagy.
    I see this has their way to remove themselves from the market as we see it. They are more familiar with the big banks and not the mortgage broker and this is their way of removing themselves from it. Between all the executives at Root they have plenty of connections in the world of finance and hope to capitalize on them. I think the major problem they have and will continue to have is their lack of insight to the consumer and the inability to communicate properly to them.

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