I have always referred to the LT lead as loan officer crack.  LO’s can get addicted to LT leads like they are buying it from a pusher standing on a street corner.  Why do LO’s jones over an LT lead like Tyrone Biggums longing for his next fix (have to be a fan of Chappelle’s Show for this reference!)?  Because they are very easy to call.

There is no mistaking it.  The LT form qualifies a potential buyer like no other product on the market.  The consumer fills out a virtually completed 1003.  They give their social and submit to have their credit pulled.  The form is more than twice as long as the standard short-form lead.  Consumers that complete the form are virtually 100% committed to the mortgage inquiry process and returns are essentially non-existent.  Based on this, it is obviously the perfect product, right?  C’mon, you should know better than that…

There is no question that the LendingTree product has a tremendous amount of value, but the question is, is the value commensurate with the price?  LT’s pricing is as unique as their product.  As all of you most likely know, there is a front-end fee called the, “Transmit Fee,” which is like the cost-per-lead fee all other short-form providers charge.  There is also a back-end fee, should the loan turn into a funded loan, known as a “Success Fee,” which is sometimes north of $1000.  What I would like to look at in this piece is the inherent value in the lead and whether or not it is worth the price.

Value isn’t always derived solely from ROI.  There are other intangibles that need to be realistically considered.  For example, I have a client that has traditionally had success with LendingTree leads.  So much so, that there have been no less than 4 companies started by loan officers that used to work for this company.  These spin-offs, however, typically can’t afford the $15,000 outlay that LendingTree requires for new long-form clients, so they aren’t able to purchase LT leads.  So for this client of mine, the fact that they are on the LT network is good for recruiting and LO retention as the spin-offs frequently try to recruit from their former employer.  No matter how compelling of a case that I could potentially come up with valuing my leads over an LT lead, it would never outweigh the value of retaining top talent.  So if I were to write a piece about the value of the long form lead and not mention intangibles such as this, it would be disingenuous.  That said, I do feel like there has been a concerted movement in the market away from long-form leads.  There are several companies that I know traditionally bought almost nothing but LT leads that now see that as a smaller, if not insignificant, part of their business.  The reason is simply costs.

The long form lead is very expensive for LendingTree to generate.  I wouldn’t begin to know the cost per form, but I can certainly arrive at a decent guess.  Let’s look at it this way, for a good short-form provider, you would typically see about a 5% completion rate.  In other words, to get 5 consumers to complete a short-form inquiry you need to get 100 people to land on the form.  I would imagine, and this is absolutely a guess, that due to how cumbersome the long form is to complete, that that number would be no more than half of that of the short form.  So, in order to get roughly 2.5 complete forms, you need 100 people to at least begin completing a form.   LT probably generates about 2000 - 3000 unique, inquires per day (again, another pure guess).  That would mean that they would need to get 80,000 – 120,000 unique visits to their form every day.  With the ever-rising costs of off-line and on-line advertising, this cost has to be astronomical.  And since LendingTree, like every other lead company, is not in this business for charity, those costs need to be passed on to the clients, along with margins, in hopes of making a profit.  Now let’s open up the hood a little bit and understand the costs associated with a LendingTree long-form lead.

As we discussed, typically there is a front end cost, the Transmit Fee, of anywhere from $25-$45, so let’s take an average of $35.  On the back end, once a loan closes, there is a Success Fee that ranges, by my understanding, of about $800 to $1100, depending on the size of the loan.  But let’s take the low end of the spectrum at $800.  Below is a simple little calculator that I built to compare LT long-form leads vs. the standard short form counterpart.

I am making several assumptions for the sake of argument in this analysis.  Specifically I am assuming:

So, conceivably, you could buy in this scenario 2000 short form leads per month to double your production to 50 loans per month – equivalent to the LT leads – and still spend 25% less on short form leads than what it would cost for the equivalent of 1000 long form leads.

Again, I am not proposing to not buy LT leads.  The company essentially invented this industry and their leads should continue to be a component to your marketing portfolio.  Also, I completely realize that I did not include operating costs in these figures.  The net incomes and ROI percentages would certainly be less when you factor in that whole… paying-out-commissions, phone-bills, rent, air conditioning, etc.  Certainly that is going to affect profits and ROI.  But it would affect each side equally and I didn’t want to cloud the analysis with too many numbers as that can sometimes make normal people unlike myself squeamish.