- Morpheus, from The Matrix
“This is your last chance. After this there is no turning back. You take the blue pill, the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes. Remember, all I’m offering you is the the truth.”

I’ve been writing a series on how I would build Zillow Mortgage. My hope is that Zillow will offer something innovative. Today, two business models represent how the majority of online mortgage aggregaters operate. Each of these two models is dominated by a lead company, and each of these two models remind me of Morpheus’ enigma.

The blue pill represent the Bank Rate model. Here, loan originators post generic rates online for consumers to compare. The problem is that we all know rates are not generic. Because of this, there’s no way to quote an accurate rate, so the LO’s only real strategy is to try to post the lowest possible rate they could offer in an ideal, best case scenario. It reminds me of how one politician tries to out-promise another in an election debate. The blue pill represents fiction, which is exactly what most of those rates end up representing.

The red pill is the Lending Tree model. Here, a potential borrower fills out an application to be submitted to three or more loan originators to compete over. In terms of accuracy, this is certainly a more accurate way to shop. The downside is that you just became a lead. From this day forward, you are always a lead. Not just a phone number either. You just submitted every aspect of your financial, personal, credit, and employment history to three or more companies that are complete strangers to you. Some companies that follow this model are less discriminating about who gets this lead. In some cases, it’s another lead company that will sell your info again, and again, and again. (To my knowledge, I’ve never herd of this happening at Lending Tree itself). So the red pill leads you down the rabbit hole to a more accurate rate, but there’s a few caveats that the online company has forgotten to mention. Later in The Matrix, one character sums it up by saying, “I know what your thinking… Why didn’t I choose the blue pill”.

Zillow needs to come up with a way to invert the rabbit hole and discard the blue pill altogether. I started to write that post tonight, but realized the problem needed to be explained before a solution could be offered. More to come.

Tagged as: Zillow Mortgage