Like electronic bill-payment service providers, mortgage lenders are at odds about online fees.
Both businesses must cover costs just to offer their services. At mortgage lenders, those costs include items like appraisals and credit checks. Because nothing erects a barrier to online usage faster than an up-front fee, balancing consumers' tendency to interpret "online" as "free" and institutions' need to charge for services remains a struggle.
Some banks followed Bank of America Corp. when it eliminated bill- payment fees. Others dug in their heels on fees ranging from 30 cents or so per bill to about $5 a month.
Similarly, mortgage lenders differ over whether and how to exact up-front charges. The $51-billion M&T Bank Corp. in Buffalo, which generated about 15% of its retail mortgage loan volume through the web last year, previously asked customers to pay fees by credit card when they submitted online loan apps.
"We found that about half of the applicants were dropping out," said Mo Hassan, the vice president of online lending at M&T Mortgage Co. "So we stopped asking for money."
To get around this problem, M&T's mortgage loan reps follow up by phone to explain the online applicant's options and answer questions. Only after that consultation and a customer commitment is a fee paid. The company said this approach is more consistent with consumers' comfort level with the Internet.
Washington Mutual Inc., meanwhile, clearly states on its website that it charges a fee-ranging from $295 to $450, depending on the state -for all applications submitted over the Internet. Jeffrey Jones, the senior VP-marketing and e-commerce for Wamu's home loans and insurance services group, said the $268-billion Seattle thrift company charges an up-front fee primarily because it wants to have consistent pricing throughout its origination channels.
"Regardless of whether you get a loan through the web, a loan consultant on the street, or a wholesale broker, the bottom line is the pricing should look exactly the same," Jones said. "Customers can come to us however they want, and shouldn't be penalized or rewarded on price."
Wamu has done usability testing to make sure it is adequately notifying customers about the fee, Jones said. About a year and a half ago it repositioned the disclosure to be at the start of the application process.
SunTrust Banks Inc. occupies a middle ground between Wamu and M&T. The 17% of customers who come to the Atlanta company directly via the Internet are asked to pay an up-front fee of about $350 to cover an appraisal and credit report, said C. Dandridge (Dan) Massey, SunTrust's senior vice president for retention and e-business. But most of SunTrust's online customers reach it through web pages that have been personalized by local loan officers with their photo, a brief bio, and contact information, Massey said.
Lenders receive e-mail and applications through their customized sites and may collect up-front fees. Ultimately the decision to collect fees early or late in the process is up to the local sales manager, he added. Several years ago SunTrust required online applicants to pay a fee even before beginning the process, and "we got very few apps," Massey said ow the fee request is made at the optimal point. Those who want the process to move quickly are encouraged to send fees immediately, an approach that has helped boost the number of online apps "a good deal," he said.
Last year SunTrust closed $864 million of loans online, or 8.4% of its total retail production, up from $40 million, or 0.6% of the total, in 2000, according to Massey.
When online application is free, institutions run the risk of being bombarded by shoppers.
As Jones of Wamu put it: "With the refi mania, we want to make sure we've got someone who's serious about doing a transaction, because there's still a lot of work involved."