A Bourse is a Bourse and Zillow Mortgage is a Marketplace and Never the Twain Shall Meet

by Sean Purcell

Real Estate Renaissance Man

Author website

Bourse is a funny word isn’t it?  What exactly does it mean and why do people keep referring to the Zillow Mortgage Marketplace as a Bourse?

Bourse: \ˈburs\ Function: noun
Etymology: Middle French, literally, purse, from Medieval Latin bursa — more at purse
Date: 1597
1: exchange 5a; specifically : a European stock exchange
2: a sale of numismatic or philatelic items on tables (as at a convention)

Wikipedia equates a bourse more generally to a stock exchange.  This seems to be the connotation meant when Zillow Mortgage Marketplace is referred to as a Bourse: an open marketplace where pricing is transparent.

Hogwash… or more accurately: Pork Bellies.

I was an options trader on the floor of the Chicago Board Options Exchange.  That means I stood in a pit with other traders and made the market for various options on various stocks.  (I reiterate this to make clear my bona fides).  When a broker (representing “the public”) came into the pit and yelled out an option strike, my job was to have the best bid/ask and be FIRST.  If I accomplished both goals, I got to do the trade.  If someone else was tighter or faster… he/she got to do the trade.  This is the most transparent, open market type of bourse that exists.  How does Zillow Mortgage Marketplace compare to this?  Not even close.

There are more than a few discrepancies, but let me cut to the chase: In a transparent exchange, whether it be a pure “open market”, “open out-cry” system like in Chicago or the “license to steal” that goes on at the New York Stock Exchange, one thing remains true: the underlying commodity is fungible.  One share of IBM stock is interchangeable with another share of IBM stock.  One call option is interchangeable with its mirror strike and expiration date call option for the same underlying equity.  Its nature does not change based on who buys them or who sells them.  This is a bourse.

MORTGAGE IS MORE FUNGUS THAN FUNGIBLE
Now you might say that all 30 year fixed rate loans are fungible, but they are not.  A lot more information must be presented before claiming two such loans interchangeable.  We must know income, credit, assets, collateral and (perhaps most important of all) financial goals.  Rarely, as a matter of fact, are two loans interchangeable at rate and price.  Add to which, the very nature of the loan (as well as its pricing) varies based on who is the “buyer” (borrower) and even, to some degree, who is the “seller” (originator).  This is not so much a bourse as it is, eponymously, a marketplace.  That is to say: every commodity at a fish market is a little different from the next and, although the prices may be called out in a transparent nature, the actual commodity is not interchangeable and the buyer had better know their fish.

SUITABILITY DOES NOT INVOLVE TAILORS
This lack of fungibility is not even the real problem!  What?  There’s more?  You bet – let’s talk for a moment about suitability.  Oh, there’s a three dollar word alright.  Suitability is a word every one of us from the securities field understands, but in the Wild West of cowboy mortgages I don’t think that word has joined the wagon train across the prairies yet.  In the securities industry, when you advise someone, you take on a fiduciary responsibility and the suitability of your advice is of paramount importance.  Get caught putting someone in an investment unsuitable to their financial situation or goals and see how fast your livelihood can get yanked out from underneath you.  Make your head spin.  No such consequence in the mortgage field; one of the problems Zillow Mortgage Marketplace is endeavoring to correct.  I applaud them for the effort but that is where the applause stops.

BOURSE REDUX
Again with the funny word bourse.  A bourse is someplace where people come to buy and/or sell a commodity.  There is no aspect of the transaction that pertains to “suitability”.  A mortgage, however, is a commodity that is very much purchased based on suitability.  To make this clearer: at an exchange no one asks whether or not the purchase of a stock or option is appropriate for the buyer or seller.  It is caveat emptor in every sense of the phrase.  People do not come to a bourse to purchase or sell “appropriate solutions” to a problem.  They come to buy and sell a fungible commodity.

But a mortgage is a solution to a problem.  In the vast majority of situations, if done correctly by a professional mortgage originator, it is tailored to the borrowers’ needs and goals.  It is, dare I say it, laughable to put the weight of an investment totalling hundreds of thousands of dollars (aka mortgage), on to a person who may not even know the right questions to ask.  This is akin to someone off the street, with little or no investment background, walking down into the pit at the Board of Trade and screaming out: “I think I need to be diversified into pork bellies!  What price do you give me for June pork bellies?!”  That person is going to be pretty unhappy come late June with a truck load of actual pork bellies delivered to their front lawn.

The suitability of a pork belly investment is between that investor and his stock broker or financial advisor.  It does not take place on the floor of a bourse.  The same can be said of a borrower.  The suitability of a mortgage product must be discussed between the borrower and their advisor.  The number of borrowers that can figure this out on their own – the two to four times in their life that they might do it – are small indeed.  Zillow Mortgage Marketplace is a great system for pricing loans to the extremely small contingent of borrowers who accurately know what they need.  For everyone else, Caveat Emptor should be stamped in bold print across every quote they get.  Either that or: Warning, fish and blind-quote originators smell after three days.