Online Lending: Competition Heats up E-Mortgages

The cyberloan field has matured from swaddling clothes to short pants. By the time it reaches adulthood, it may account for a quarter of all U.S. mortgage originations. Find out who are shaping up to be the major players in online lending—and what you need to tell homebuyers who ask you about borrowing over the Internet.

June 1, 1999

As consumers' comfort with and confidence in online shopping grows, you'll see big spikes in the amount of business the residential mortgage industry generates online. Although cyber originations account for only 2 percent to 3 percent of the industry, or about $4 billion to $8 billion, analysts say the online channel could grab as much as 25 percent to 30 percent of the business within five years. A recent Deutsche Bank study projects online mortgage originations of $60 billion in 2000 and $250 billion in 2003.

Online sites offer allow borrowers to comparison shop and receive a discount on mortgage brokerage fees. Loan processing typically takes the same 30 to 45 days required for an offline mortgage, but the sites can turn around a mortgage in a week if necessary. The better sites include good consumer information, sophisticated mortgage calculators, and online loan applications.

There's little doubt that you'll be hearing from buyers about the developing online mortgage channel. To field the inevitable questions, you'll want to be familiar with what the top sites offer. Here's a primer on the three basic business models for mortgage loan sites:

  1. Single-source sites promote loan products from one lender, such as Countrywide Home Loans.
  2. Referral sites, such as QuickenMortgage and HomeAdvisor, function primarily as lead generators, or a marketing service, for multiple lenders. A borrower picks a loan from the available options and fills out an application. Then the site turns over the paperwork and the process to the lender offering that loan. The borrower works with the lender directly.
  3. Mortgage brokerage sites, such as iOwn (formerly HomeShark) and E-Loan, process loans in their own shops. That is, they collect applicants’ documents, check their income, and then turn over a ready-to-go package to a lender offering the loan the borrower picked.

Newcomers to the business, which continue to pop up, tend to use the single-source or referral models because those setups are less costly to operate. Meanwhile, established sites are adding innovative, consumer-friendly features—loan-tracking capabilities and products for credit-impaired borrowers, for instance—and tapping venture capital money to finance development and marketing efforts.

REALTOR® Magazine (then Today's REALTOR®) first reviewed the top sites in “Online Lending: E-Mortgages Put More Loan Choices in Buyers’ Hands” in August 1998. More recently, we asked each of the three big sites to give us the low-down on what they do, and, more important, tell us why real estate pros should refer buyers to them.

REALTOR.COM Financing Content Cobranded with Quicken

Thanks in part to a partnership with Intuit's QuickenMortgage Web site, REALTOR.COM, the Internet's largest property listing site and the NATIONAL ASSOCIATION OF REALTORS® own, features a complete consumer Finance Center. (At the REALTOR.COM home page, click on Resource Center and then Finance Center.) The center features mortgage calculators, financial checklists and work sheets, guidelines for assessing a borrower's financial position, an explanation of the loan application process, and information about applying for, closing on, and refinancing a home mortgage. Can any of the thousands of online mortgage sites challenge E-Loan, iOwn, and QuickenMortgage for the top spots? Since many are single-source lenders, it's doubtful they'll usurp the three leaders. Still, online lending is a developing field in which the unexpected is possible. To take a leading position, a site would need a profit-making business model, banner and portal advertising that generates traffic, and a large selection of loan products.

REALTORS®can use the cobranded Finance Center (Fannie Mae is another partner) to help homebuyers educate themselves about mortgage products, obtain a copy of their credit report, and figure out how much they can qualify to borrow. "Intuit is world famous for financial software. [That's why] we believe it's worthwhile to use some of QuickenMortgage's tools on REALTOR.COM," says David Rosenblatt, vice president of marketing for RealSelect Inc., Thousand Oaks, Calif.

New E-mortgage ‘Sitings’

Can any of the thousands of online mortgage sites challenge E-Loan, iOwn, and QuickenMortgage for the top spots? Since many are single-source lenders, it's doubtful they'll usurp the three leaders. Still, online lending is a developing field in which the unexpected is possible. To take a leading position, a site would need a profit-making business model, banner and portal advertising that generates traffic, and a large selection of loan products.

Relative newcomers to the category are

GetSmart--"Borrower's marketplace" matches consumer-entered requeststo participating lenders' home mortgages, credit card loans, auto loans, and small-business financing. (GetSmart added mortgage services to its existing site in March 1998.)

Lending Tree--Loan referral site relays consumer-selected loan requests to 20-lender network. Lenders reply directly to consumers. The company was founded in 1996 but "relaunched" its online loan service in June 1998.

Priceline--Online shopping site is known for name-your-own-price airline tickets and hotel rooms. Its mortgage search function is operated by LendingTree and was added to the existing site in January 1999.

Other mortgage-related sites of interest include

HomePath--Good consumer education site from Fannie Mae.

Mortgage Professor--Good educational articles for consumers.

Mortgage Calculator--Handy resource for complex mortgage calculations.

Online Mortgages: One Practitioner's Experience

Ira Serkes, a broker-associate with RE/MAX--Bay Area in Berkeley, Calif., cites a case in point. When the buyers in one of Serkes’ transactions obtained a mortgage through a Web site last year, Serkes had no contact whatsoever with the online service. “[Coordinating a transaction] is easier when we're working with [a mortgage provider] we know, because we have lines of communication set up,” he says. “In this case, the lender didn't communicate [with us] at all. But since the end result was a loan that was satisfactory to the buyers, I felt [the online service] was OK.”

One way to increase the comfort level for buyers-cum-online loan shoppers is to have them obtain a preapproval letter from a traditional lender as well, Serkes suggests. “My concern is, What happens in a competitive market when the preapproval letter comes from a lender the other salespeople don't know?” he says. “That puts the buyer at a disadvantage.”

The bottom line is to “be open-minded,” Serkes concludes. “If someone wants to use a Web site such as E-Loan or HomeShark, that's OK. If [those transactions] work out well, [you] can consider referring the Web site [along with traditional lenders].”

What are three big, independent loan sites saying about themselves? Find out here.

Established November 1997;
Alison Berkley, group product manager

Established June 1997;
Sharon Ruwart, vice president, marketing

Established June 1997;
Charles Coustan, director of product management
How many lenders are on your site? 15-16 lenders in every state More than 60 lenders 25 lenders
What fees do you charge? "We charge 40 basis points, which the lender pays us when the loan closes." "We charge five-eighths of a point and a processing fee of $250.” "We [charge] a $400 processing fee, plus one-half of a point."
In which states are you not doing business? Available in all 50 states Connecticut, Florida, Illinois, New Jersey, Pennsylvania, Rhode Island, and Virginia Arizona, Hawaii, Missouri, New Jersey, and parts of New York
Why should real estate practitioners refer buyers to an online mortgage site? “It's a time-saver for consumers if they can go to one site and get great prices. And [the site] is available whenever the consumer wants it to be available.” “[A real estate practitioner's] client will get more choices and better rates than with traditional brokers, who can track only a limited number of products and have special relationships that [give them] incentives to push particular products.” “We don't want real estate practitioners to abandon existing relationships [with local lenders]. We're the Internet alternative. Practitioners serve their customers best by offering a range of alternatives.”
Why should real estate practitioners refer buyers to your site? "Quicken has a brand name, and that means a lot to us. We have a lot at stake in how the customer is treated. We're unbiased in that we don't fund our own loans. It doesn't make a difference to us which lender the consumer chooses. Also, our site has more educational content and tools available for consumers [than the other lending sites]." “Among the larger online mortgage site, E-Loan is the only one that was founded by mortgage brokers. We pioneered the channel, and we were online early, so we really understand how to [originate loans online]. We're the only site that offers a 24-hour online tracking ability." (Check out the site's tracking demo.) “[Borrowers] will be satisfied with the level of service we provide and the cost savings. We keep the practitioner in the loop as part of the loan process. We enable the practitioner to prequalify clients, and we have an active preapproval program. Our site has a lot of content. Practitioners spend a great deal of time educating their clients, and they can do a lot of that on our site."
What is the most important feature on your site? "In November 1998 we added a credit assessment tool and partnerships with four subprime lenders—Advanta, The Money Store, United Lending, and Bank One--as part of our broader initiative to integrate credit more tightly into what our site offers. Quicken's credit assessment questionnaire walks users through a series of questions: How many car payments have you made 30–60 days late in the past year? Do you have any judgments or liens pending against you. Have you ever filed for bankruptcy? The assessment is supposed to rank their credit histories. Then Quicken can punt the loan applications of the credit impaired to the lenders at its site that work with those applicants.” "E-Track lets customers log on to a password-protected account that allows them to see exactly what's going on with their loan at any time. If customers give [their] permission, the practitioner can access the account and see what's going on, too." "We have a complete and detailed database of closing costs in 47 states, [including] all the local, county, and, in some cases, city information. We provide loan-specific cost estimates, so the consumer knows up front what to expect."

Marcie Geffner is a freelance writer based in Los Angeles.

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