Microsoft Leaps into Online Home Mortgage Venture

In an effort to keep its MSN.com portal competitive with its rivals, Microsoft Corp. (Nasdaq: MSFT) announced today that it is joining with a number of financial institutions to launch a Web site that will automate home mortgage transactions.

The new company, HomeAdvisor Technologies, will provide tools to automate electronic applications, underwriting, property valuation and other time-consuming mortgage loan processes. The company says its technology, which was in development for over a year, can cut the closing period from 30 to 10 days and trim $2,000 (US$) off the price of a loan over its time span.

HomeAdvisor will be operational in a few weeks, the software giant said. Financial terms were not disclosed.

Possible IPO?

Microsoft will hold a majority stake in the venture, while Chase Manhattan, Bank of America, Wells Fargo subsidiary Norwest Mortgage and housing giant Fannie Mae will also take equity stakes.

As the latest addition to Microsoft’s MSN network, HomeAdvisor will strengthen its competitive position against America Online, Yahoo!, Lycos, AltaVista and other portals that are offering a widening array of content and services to Internet users.

Additionally, if Microsoft’s foray into the online mortgage market turns out to be successful, many analysts believe that it will eventually spin off HomeAdvisor as an IPO.

Late to the Game

HomeAdvisor is entering an already crowded playing field. The number one online mortgage broker, E-Loan, Inc., closed $1.51 billion in home mortgages in 1999. HomeAdvisor will also have to go head-to-head with such other established online players as HomeStore.com, Inc. and Homeseekers.com, Inc., which also provide listings for homes and demographic information on residential neighborhoods.

What’s more, U.S. consumers are still reluctant to finance a home online according to a study by Fannie Mae. The 1999 National Housing Survey showed that only 21 percent of the respondents would probably or definitely try financing a home over the Internet. That result shows only a one percent increase over 1996 numbers.

Not to be discounted is the competition from newspapers and local real estate listings that already provide targeted information to home buyers, say industry observers.

The New Company

The new company will consist of three separate divisions. The Transaction Platform Division will combine Microsoft technology with electronic loan decision and processing tools from its partners to streamline and automate all aspects of the mortgage. The platform will be distributed to banks, lenders, and real estate professionals by HomeAdvisor Technologies partners.

The Productivity Tools Division will cater to real estate professionals and will provide real estate professionals with productivity tools and customized versions of products developed by the Transaction Platform Division. The showcase of this division will be the Realty Desktop, a suite of tools designed for realtors. The HomeAdvisor.com Division is the consumer division of the new company and will provide consumers with information and tools to help them buy, sell, maintain, and improve their homes.

The consumer division of the new company will be known as the HomeAdvisor.com Division and will provide consumers with information about buying, financing, moving into, improving, and selling their home. In addition, HomeAdvisor.com will be the first site to offer the company’s new loan platforms.

RealNetworks Deal

Meanwhile, in a separate development, Microsoft said Tuesday that it has licensed its music encoding technology to Internet media company RealNetworks, Inc.

In what Microsoft Digital Media Division General Manager labeled a “milestone,” RealNetworks will now include Microsoft’s Windows Media format in future versions of its popular online music player.

Some industry analysts consider this deal to be a significant breakthrough for Microsoft, since the company had been struggling to make its format the most popular way to encode music for delivery via the Internet.

However, RealNetworks is taking a different view of the Microsoft deal. The company contends that since it is the leading online player, Microsoft had little choice but to offer its format to the company for free.