Online Mortgages Slow To Take Hold

Mortgage industry executives at last week’s Second Annual Online Mortgage Forum in Chicago, Illinois declared that U.S. Web surfers are increasingly using the Internet to research loans and compare rates, but are still wary of closing a loan online.

According to Reginald Bowser, vice-president of marketing for Lending Tree, Inc., unique situations arise when consumers search for loans online. First, many of those seeking financing online “run at a higher credit risk profile” because they are people who would prefer to remain anonymous. Also, the deals are frequently not closed because the consumer loses patience with the process and clicks away.

Still, Bowser said, lenders are at an advantage working on the Internet because they have access to a broader range of customers. The added exposure increases the odds of closing more loans.

Online lenders also hold an advantage over their offline counterparts because of the convenience factor. Even when mortgage rates increase, Lending Tree finds their business remains steady. According to Bowser, very few online loan applicants expect to find better rates, but they do appreciate the convenience and time saving elements of doing business on the Internet.

Supplemental Use

Speaking on behalf of KPMG Consulting’s consumer financial services group, managing director Geoffrey Oliver said the near future of online mortgage lending may have more to do with using the Internet as a supplement to a company’s physical presence in the marketplace.

Oliver believes the Web will account for 25 to 30 percent of total loan applications within five years. Additionally, he expects the Internet to ultimately allow customers to design their own mortgage products.

David Espenshied, CEO of the eBusiness division of Countrywide, agrees with Oliver’s projections. He said his firm hopes to use the Internet to service loans for 25 percent of its borrowers.

Espenshied believes the only way to increase consumers’ comfort level with closing a loan online will be to simplify the process. Simplification would include speeding up the process, as well as cutting the cost of collecting monthly payments for the lending institution.

The final hurdle may well be persuading consumers to forgo the personal interaction that usually accompanies closing a mortgage loan. According to Bowser, “consumers may want their hand held.”

Big Names in Mortgage Lending

Despite the challenges confronting online mortgage lenders, some of the highest profile Internet companies are getting in on the act.

Earlier this month, American Express Financial Services launched its own online mortgage business in partnership with Prism Mortgage Co., a concern that originated $8 billion (US$) in loans last year.

The new site allows customers to enter the loan amount, property value, property location and information about the length and type of loan desired. The site then lists a series of applicable loans that customers can sort by closing costs, monthly payments points, rates and other data.

Such companies as American Express and Microsoft, which also launched its own mortgage lending division, may be banking on name recognition and credibility to increase the rate of online loan closings.