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Web Mortgages May Be Due For a Comeback This Year
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January 22, 2001 (Computerworld) -- Last spring, companies like Mortgage.com promised to revolutionize the process of borrowing money to buy a house by making the process easier, quicker and cheaper.
But by the end of the year, the company was officially dead, and its Web address was bought by ABN Amro Mortgage Group Inc. in Troy, N.Y., a subsidiary of Amsterdam-based ABN Amro Holding NV.
Although there were fears that Mortgage.com's closing demonstrated that mortgages were, in fact, too complex to sell over the Internet, analysts now argue that online mortgages may be poised to take off this year due to more familiarity with the Internet and the recent cut in interest rates.
According to George Barto, an online banking analyst at Stamford, Conn.-based Gartner Group Inc., Mortgage.com's failure simply demonstrates that it couldn't survive the downturn in the economy - not that people are unwilling to buy mortgages online.
Net-Enabled Home-Owning
According to a survey of 1,674 home owners and renters commissioned by Washington-based mortgage services company Fannie Mae last summer, 28% of Americans would definitely or probably use the Internet to get a home mortgage, and 32% would consider it. About 4% of recent home buyers applied for mortgages online, according to Fannie Mae.
And a recent forecast from the Mortgage Bankers Association of America estimates that the rate for a 30-year fixed-rate mortgage this year will drop to 7.5%, compared with 8.1% last year. The number of refinancings is expected to increase with that interest rate drop.
Milt Riseman said he's ready for an increase in new customers - but he doesn't know quite when they'll show up.
Riseman is chairman of the consumer mortgage group at American Business Financial Services Inc. in Bala Cynwyd, Pa. The 12-year-old company owns the Upland Mortgage Web site, which currently sees a couple of million dollars per month in business - out of $45 million to $50 million total.
But a good number of online start-ups lacking that traditional base couldn't survive. In addition to Mortgage.com's demise, Homespace.com, Loanz.com, Onloan.com and eJumbo.com folded or decided to get out of the market.
Promises of huge cost savings through automation haven't come true for the online-only sites because of high customer acquisition costs, according to analysts.
Few Pure-Plays Left
That leaves only a few pure-play online mortgage companies still standing, including E-Loan Inc. in Dublin, Calif., and LendingTree Inc. in Charlotte, N.C. The consolidation may be good for the industry, said Barto. "The amount of online lending is not declining - only the number of players dividing up that business," he said.
The other types of companies that survived last year's shakeout are the traditional firms that now offer their customers an online channel. And, as in other industries, the brick-and-clicks approach to mortgage sales may be the most successful, said analyst Aaron McPherson at Framingham, Mass.-based IDC. "It needs to evolve more organically from an existing, stable business."
Another part of the mortgage life cycle is the secondary market, of which about $16.5 billion is expected to be traded online this year, McPherson said. The secondary market is where mortgages are bundled and sold to third parties.
This amount could jump significantly, McPherson added, if McLean, Va.-based Freddie Mac and Fannie Mae, which collectively control the vast majority of this market, move their acquisition processes online.
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