No company has taken better advantage of the refinancing boom than Quicken Loans. The Detroit-based firm was the 34th-biggest mortgage lender in 2006. Last year, Quicken overtook Citigroup (C) as the nation’s fifth-ranked mortgage lender in the third quarter. The $25 billion in loans it made during the fourth quarter pushed it past U.S. Bancorp (USB) and Bank of America (BAC) into the No. 3 spot, behind Wells Fargo and JPMorgan Chase (JPM). For the full year, lending jumped to $70 billion, up from $30 billion in 2011, with refis accounting for 85 percent of the total. “Our mission is to do as much or more than we did last year,” says Chief Executive Officer Bill Emerson. “There’s a massive market out there, and 93 out of 100 people still wake up and go somewhere else.”
For lenders able to withstand the housing bust, business is way up. New loans rose 22 percent in 2012, to $1.8 trillion, as the Federal Reserve drove 30-year mortgage rates to record lows and President Barack Obama expanded federal refinancing programs. Retreats by Bank of America and other large lenders left a “tremendous amount of market share available,” says John Robbins, CEO of Bexil American Mortgage.
Quicken’s business model differs from most of its rivals’. The company has no branches or relationships with brokers, granting loans almost solely through its website and call centers. In 2010, Quicken began to strike deals with community banks to fund loans to their customers. That business and an arrangement to take referrals from Charles Schwab (SCHW) fueled about 15 percent of its loan business last year, according to Emerson.
Dan Gilbert, billionaire owner of investment firm Rock Ventures and the Cleveland Cavaliers basketball team, founded the company in 1985 as Rock Financial, a traditional branch-based lender. Emerson joined in 1993 as a loan officer and distinguished himself by helping to create the “mortgage in a box.” The firm mailed customers documents to fill out and send back—a precursor to the online model it focused on after going public in May 1998. Within two years, as Net stocks boomed, the company was bought by Intuit (INTU), maker of the Quicken and TurboTax personal-finance software, for $529.4 million. In August 2002, after the bubble had burst, Intuit sold the company for $20.5 million to a group led by Gilbert, which also got the right to use the Quicken brand. Quicken has been profitable every year since, Emerson says, declining to provide figures. It has “no near-term game plan in terms of an exit strategy” such as a sale or IPO, he says.
Quicken survived the housing collapse partly because it got out of subprime lending in 1998. Having a model that isn’t “loan officer-centric” probably helped, Emerson says. For instance, appraisals have always been ordered through a separate firm it owns, rather than by employees with incentives to make sure mortgages close.
Reputation is especially important to Quicken, Emerson says, because repeat customers and referrals are a key source of business—especially since the company avoids competing by offering the lowest rates. Emerson gets daily reports on all complaints made about the firm in social media or e-mail, and he and Gilbert are alerted when a potential borrower’s question goes 24 hours without a response, he said. Internally, the company uses the slogan: “Every client. Every time. No exceptions. No excuses.”
Emerson’s biggest challenges may come as the refi boom winds down. Refinancing, which accounted for 71 percent of all mortgage originations last year, may fall to 58 percent of the total this year and 34 percent in 2014 as interest rates increase, according to the Mortgage Bankers Association. Bexil’s Robbins doubts that an online lender can thrive once refinancing dries up. Borrowers often choose mortgage lenders based on referrals by real estate agents or builders, driven in many cases by personal relationships with local loan officers, he says. “It’s the Achilles’ heel of that particular model,” says Robbins. “I’ve always found that the face-to-face relationship is far superior.”
Emerson says the company is working to capture more business from home buyers. The firm’s increasing market share gives it customers who may return when they buy properties, and an online lender can win over real estate agents by giving them “visibility into what’s going on with their transaction,” he says. “It’s completely doable.”