What Does the Mortgage Meltdown Mean for Online Advertising?

The nation’s mortgage market turmoil has triggered concern over a potential chill, or deep freeze, on online advertising budgets that will hurt the likes of Google and Yahoo. After all, financial services account for a hefty 17 percent of online ads, according to one estimate.

The crisis underlines another dilemma for mortgage companies like Countrywide Financial and lead generators like LendingTree.com. What will they do online to shore up reputations and win customer trust as foreclosures increase and adjustable mortgages reset at higher interest rates?

Managing and working during a crisis isn’t easy. My past experience as a daily newspaper journalist taught me that. When bad things happen, a reporter and photographer – sometimes an entire newsroom — must respond.

Why doesn’t this happen at other businesses, regardless of their mission, be it financial services, merchandise, food, or travel? Some businesses get it. Others don’t.

ClickZ’s CMO columnist Pete Blackshaw hammers home this point. Among the stellar rebounds: JetBlue. After the airline left passengers stranded on JFK Airport runways during a February ice storm and then canceled numerous other flights, CEO David Neeleman responded. He posted a video on YouTube, apologizing to passengers and outlining plans to fix broken processes.

As ClickZ’s new executive editor, the mortgage crisis struck me as a topic ripe for investigation, including what the turmoil means for online advertisers and marketers, and companies that derive revenue from these businesses.

Did-it.com Chairman (and ClickZ columnist) Kevin Lee told my colleague, Kevin Heisler, executive editor at Search Engine Watch, he’s seen some fallout. “We noticed some softness in both keyword pricing as well as in search volumes in the mortgage space with some dilution in conversion rates,” Lee said. That said, a conversion rate drop doesn’t necessarily mean fewer prospects are filling out loan applications. It could mean an increasing percentage of news-related searches is bringing down conversion rates.

A look at the top online advertisers suggests some lending companies continued to dedicate money to online advertisements in the early summer even as the home mortgage market encountered turmoil.

In fact, Bankrate.com, an aggregator of loan rates and other financial information, has seen strong demand for its mortgage and deposit channels, says Bruce Zanca, Bankrate’s chief marketing and communications officer. In a twist, some financial institutions such as Countrywide and IndyMac launched online ad campaigns promoting their respective certificates of deposit.

Not everyone’s doing as well. Consider IAC/InterActive Corp.’s LendingTree.com unit, which provides leads to mortgage companies. It reported revenue of $198.6 million for the first six months of 2007, representing a 10 percent drop compared to the same period in 2006. IAC cited deteriorating market conditions for LendingTree’s revenue decline. Still, LendingTree’s Web site ranked No. 1 on a list identifying top Internet advertisers, based on media value, in May and June, according to TNS Media Intelligence.

LendingTree, in an earnings report filed May 10, said it would focus instead on “traditional mortgage products in reaction to changes in the mortgage market.” But did the company change its online ad strategy?

A Google search for “home loans” turns up at least a dozen sponsored or paid results. Among them, one for LendingTree, that read: “$200,000 for $938/Month! When Banks Compete, You Win.”

LendingTree’s site features innocuous customer testimonials. “Lending Tree was easy, fast and I was very satisfied with the results,” says Margaret T. of Key West, Fla. “This whole process was so easy! We started receiving offers, decided on one, and within weeks, closed on our refinance!” writes Victor N. of Port St. Lucie, Fla.

Was it a coincidence LendingTree chose customers from Florida, a state hard hit by the mortgage implosion? Probably not. Beyond that, the company, like others, doesn’t appear to acknowledge hardships some borrowers have encountered with declining housing values and climbing monthly mortgage payments.

In response, LendingTree’s senior vice president of marketing, Darren Beck, said in an e-mail that the company “regularly adjusts its advertising to adapt to not only the market environment but also the needs of both our consumers and lenders.” Recent changes, he said, include promoting more fixed-rate loans to assist consumers with adjustable rate mortgages about to reset.

The Washington Post spotted a Countrywide Financial ad on AOL.com promising to make it easy to get loans for homeowners with credit problems. Countrywide told the Post it “monitors and adjusts advertisements to help ensure that the leads generated are likely to be within our underwriting parameters.” Rick Sizemore, chief strategy officer at Multimedia Intelligence, suspects many mortgage lenders, especially those targeting the subprime market, are scrambling to survive rather than revise their ads.”Strategies are chaotic,” he observed.

For some, it’s easier to hide in a foxhole than to climb out and fight back.