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Only one quarter of the year has passed, but a whole lot has gone down since I blogged about the State of the Mortgage Industry – and unfortunately I do mean down.

Before I start, I want to be upfront about the realities we are facing. You guys know me – I try to be the most optimistic person in the room. But these last few months have been one of the most frustrating time periods in my leads lifetime. I wish I could have a positive outlook. The truth is, the negatives continue to overwhelm the positive in all the major trends.

1. Interest rates

Yes, interest rates have stayed low. That’s a plus. But low interest rates are only a small part of the equation in qualifying a buyer for a mortgage. You still need a good loan-to-value to qualify for a mortgage. Most consumers don’t have that – they are upside down. The banks are still very strict on their underwriting guidelines. That has been frustrating for folks in the space who are ready to lend to consumers who are ready to buy or refi, but can’t get qualified.

2. Regulation-Z

The loan officer compensation requirement, Reg-Z, has caused a major change in the space. In my last post, I commented that loan officers earning over $150K per year would become a thing of the past. Well, a lot of them are in a state of confusion and disarray right now. These are smart, competitive men and women. I think a lot of them assumed they’d make a transition and things would correct themselves. But, from the leads perspective, we’re seeing that it’s tougher and tougher for them to win. The game has changed.

Reg-Z changed the game. In the past, you could do a $100K loan and still make a good fee off of it, because there was no regulation on the percentage that you could make off that loan. Now compensation is based on the loan size. The only way loan officers can chase the same type of fee they used to make is by closing larger loans only. As a result, mortgage companies are only going after large loan amounts, of $250K or greater.

This change in philosophy by mortgage companies has created problems in the Internet lead space as well. Traditional lead buyers, who for years have been buying leads from LendingTree and LowerMyBills, are now only buying the $250K loan amount or higher. This leaves a huge market of consumers for loans under $250K that is not even being called on. Lead buyers don’t want them.

What will happen to these consumers? They will go directly to their banks. I expect we’ll continue to see that the bigger banks are going to win in the long run. They will do those loans because they don’t pay their loan officers commission (most are just salaried), whereas the regional banks, lenders, mortgage brokers won’t even touch anything below $250K.

This is a frustrating business case from the leads perspective, as well. The big 4 banks are not buying leads. They are talking about it, but not really going after it right now, because they are able to rely on walk-in traffic. They keep saying they are going to be big lead buyers, but they aren’t feeling the pain. And so this huge pool of leads remains untouched.

3. Comparison ads

When I’m wrong, I try to be the first to admit it. So I admit that I overestimated the extent to which comparison ads would be adopted. This is still a relatively new lead product and did not grow last quarter as I predicted. Not because lead buyers don’t love them – they do. Because they simply can’t get enough volume.

I have a lot more to say on the topic. I’ll pick it up again in my next post. Check back soon.