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Rich Barton at Zillow Premier Agent Forum 2017 (Geekwire Photo/Kevin Lisota)

Sometimes lost in Zillow Group’s surprising pivot to focus primarily on transforming how people buy and sell homes is its evolution into a mortgage lender. The company jumped into mortgages with the acquisition Mortgage Lenders of America last year and has been plowing resources into building its own mortgage software platform since then.

However, that plan is taking longer than expected. CEO Rich Barton said on a call with investors that Zillow has slowed hiring of mortgage officers as it continues to test the software and work out the kinks.

“As we transition from (Mortgage Lenders of America) to Zillow Home Loans, we are building new proprietary technology to streamline and integrate home loans as our payments platform for Zillow Offers,” Barton said. “We’re already testing the initial version of our digital mortgage software, but the rollout is taking a bit longer than expected.”

The mortgage division brought in $27 million in revenue in the second quarter, up 40 percent from the prior year. It took a $5.3 million loss, a figure that was better than the company expected.

As a result of the hiring slowdown and the delayed software rollout, Zillow lowered its expectations for the mortgage division for the rest of the year. Last quarter, the company expected the division to bring in $100 million to $115 million in 2019, and now Zillow projects mortgage revenue of $90 million to $100 million for the year.

On its own, a dip in mortgages isn’t a huge problem for Zillow as the company’s overall revenue jumped 84 percent in the quarter. However, the situation shows the challenges that come with disrupting real estate, which Barton acknowledged.

“It would be hard to find a more complicated snarl of a consumer experience than selling and buying a home, and all of the messy swirls around that transaction,” Barton said.

But there is a huge reward at the end of the road should Zillow be able to pull off this transition. Streamlining the real estate transaction is a trillion-dollar market opportunity, Barton said.

Zillow Offers is the centerpiece of the company’s transition, and the program is juicing revenue growth but contributing to increased losses. Zillow Offers lets customers request an offer on their homes from the company through its website. Zillow buys homes directly from the consumer, spiffs them up and sells them through the program, which just went live in its 15th market.

Zillow Offers brought in $249 million in revenue in the quarter, and the 18-month-old program already makes up close to 42 percent of the company’s overall revenue.

Barton has said he would someday like Zillow to be the Microsoft Office of real estate, providing all the key services, and mortgages are an important part of that plan.

Eventually, Zillow wants to originate a third of all mortgages attached to Zillow Offers transactions. That translates to roughly 3,000 loans per month. For all of 2018, Mortgage Lenders of America originated 4,000 loans.

“Loan originations are an essential part of our ability to deliver an integrated transaction experience for our customers,” Barton said. “We’re making solid progress and the long term expectations for our Zillow Home Loans business, and other transaction related adjacencies remains unchanged.”

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