Mortage Advertising Is Saved...Sort of

Have we found the magic pill that will bolster the ever declining internet advertising spend?

Mortgage marketers, long a staple of the internet advertising landscape, have in the past year had a much more subdued presence online, especially on display. As an inescapable piece of text link advertising on content websites, through providers such as MSN, mortgage markets have not fallen completely from view, but they sure haven't dominated the mind share and market share the way they did from 2002 into 2007. Outside of Bankrate, which most know as the publicly traded, internet ad supported company that has almost miraculously avoided stock market disaster, you will struggle to find other signs of the mortgage market advertising online.

With hundreds of billions recently injected into the financial system, and into the banks themselves, you might start to expect a bigger presence. And, while it took longer than expected, the impacts of the capital infusion have made there way online. And not surprisingly, one of the pioneers in the online space, LowerMyBills, has ads to this extent. Below you fill a recent banner touting the passage of the housing bill and the corresponding landing page that reiterates the theme. The banner uses their familiar "Calculate" call to action, but the landing page focuses on the doubts many people have over the financial meltdown, stressing "Refinance with More Confidence."

Despite the often overly optimistic nature of many mortgage related campaigns, such as those still touting rates at historic lows, this one has some truth to it, especially the last part of the of landing page's headline, which reads "Rates Dropping Sharply." Give them credit for finding yet another powerful headline. While we can't vouch for the quantity of the infusion or when this ad began, we do know that about two weeks ago, just before Thanksgiving, the Federal Reserve said that it would buy $500 billion in mortgage-backed securities currently guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. Rates had dropped some at the announcement of the bailout, but that specific announcement caused a truly dramatic in mortgage activity. And, it's not just marketers saying truly dramatic, with indices tracking activity seeing three to four times the normal mortgage activity. Is it enough, though> So far, the answer seems mixed. The number of refinances expected this year will amount to not much more than 1/4 of the total seen in 2003 during the height of the housing boom. Then again, that doesn't take into consideration the recent uptick.

For those of us that worked in the internet ad space during the bursting of the tech bubble, signs of rates dropping and mortgage activity rising remind us the foundation for great times. As rates drop, it should mean that a greater number of people become eligible to refinance, but unlike a few years ago, of those who technically qualify, i.e. their current mortgage rate is higher than what mortgages could be had for today, only a small number will actually get the lower rates. Whereas almost anyone mammal could get not just a new loan but one at a low rate, now only those with pristine credit and significant equity in the house can, limiting the overall impact of the lower rates. Subprime lending has virtually come to a halt, and current lending rules also make it tougher for those seeking larger loans or small-business owners and other self-employed individuals. The demand is still there, but the supply just hasn't caught up.

Companies like Lending Tree and LowerMyBills could prosper because they had enormous quantities of both supply and demand. A huge percentage of the population qualified for a loan, and an equally liquid market existed for them to receive them. Here we have the same depressed online ad inventory, and a slighly reduced demand from home owners, but again, there is a liquidity problem. Compounding the disctinction between now and then are the percentage who now owe more money on their house than it is worth along with overall unemployment. These two make for powerful forces against a mortgage ad recovery. Focusing on the former, underwater home owners, they have had limited options to date. Like debt settlement they can attempt to get a modified loan from their bank, but most report limit success in doing so as the banks have not the motivation or process for handling this in scale. Enter the FDIC who announced their plan for to prevent an estimated 1.5 million foreclosures by the end of 2009 by creating guidelines that will modify more than two million loans. It seems so promising, as it would create liquidity for financial leads. But, according to the Journal, "This may be wonderful politics, but the real-world evidence suggests it will be far more difficult and expensive." Making sense of the math for the various options for modifying is also difficult. It's tempting to root for the plan because selfishly it would result in an amazing resurgence in mortgage spending online. 

Returning to the second point, unemployment, for the past four to five years, the housing market has acted like the economic center of the universe. In good times it can do to the economy what no other industry can, and, it can pull the economy down in a similar fashion. In good times, it provided the consumers liquidity for everything else. In bad times though when the whole economy has faltered, fixing housing won't fix it. Only jobs will. Now, instead of fixing housing, we must fix the owners of the homes. And not to sound to stumpish, but fixing the home owners means a growing economy and job creation. Then and only then can people afford their homes, regardless if they need a loan modification or were caught up in the frenzy and made poor decsions. We all make poor decisions and get caught up in the frenzy of a good deal. The latest Wall Street fiasco only shows that. That said, this holiday, I don't want to look a low rate gift horse in the mouth. Quicken economist Bob Walters summarizes the upside best, saying  "...the unique combination of falling home prices and falling rates are bringing home affordability back to 'normal' or 'better than normal' levels, making it a great time to buy a home."