As lenders selling mortgages via the Internet proliferate, the benefits and drawbacks are becoming clearer.
According to Forrester Research of Cambridge, Mass., about $217 million of mortgage loans were initiated on-line last year. This number is expected to expand to $25.6 billion by 2001.
Lenders view Internet-based lending as a cheap and efficient way to reach more prospective customers. Indeed, experts said, as people grow more comfortable doing business on-line, many are likely to begin expecting Internet-based services from their financial providers.
However, Internet lending has its downside. Because people on-line can easily compare rates and other loan characteristics, the Internet has the potential to commoditize mortgage loans.
Lenders generally are optimistic about their on-line prospects. An increasing number are participating in Internet services from companies such as Virtual Mortgage of Newport Beach, Calif.; GetSmart of Burlingame, Calif.; HomeShark of San Francisco; and Intuit Inc., Mountain View, Calif.
Though the Web-based services offered by these companies differ somewhat, all are forums where lenders can communicate with prospective customers.
Users of the services typically are walked though a short prequalification interview that gathers information about income, debt, assets, and loan preferences. The systems then give lists of mortgage lenders in the users' geographic areas, and the loans for which the consumers qualify. When a user decides on a loan, the lender can be contacted via the Web.
The benefit for consumers is that they can "look at alternative lenders and automatically compare the information," said Robert Davis, senior vice president of production technology and electronic commerce at Jacksonville, Fla.-based HomeSide Lending Inc.
"I would have a lot of confidence they could find a good solution for their needs."
HomeSide is one of six top mortgage lenders to be listed initially on Intuit's QuickenMortgage Web site, slated to go live Nov. 4.
Mr. Davis said he expects HomeSide to benefit from people's recognition of the Quicken brand. "I have a lot of confidence in Quicken's credibility and diligent research," he said. "If we are associated with them, we will be seen as worthy to deal with."
On-line services like Intuit's are designed to compete with traditional mortgage brokers. Such brokers typically get a 1% fee on a loan. Because on-line services are more efficient, they charge half that much.
"A broker does a lot of the paperwork," said Allison Berkley, senior product manager for QuickenMortgage. "They take in the application and verify the information, but we do some of the functions electronically."
In this early stage of the Web-based lending, mortgage companies say their on-line programs can give them access to desirable customers. The average income and education levels of the typical Web surfer are higher than the general population's.
One lure of the Web-based services is that "there is no risk," said Ned Hoyt, chief executive officer and founder of HomeShark. "Our content is designed to help prospective home buyers better understand the process, make smarter decisions, and, most importantly, save money."
Paul Hill, wholesale account executive with BankAmerica Corp., which offers loans through HomeShark, said the company's strategy "is obviously working."
The number of inquiries hailing from the site do not qualify as "a landslide," he said, but they are growing "as people get used to purchasing goods and services through the Internet."
Though some raised concerns about Web-based lending leading to commoditization, GetSmart chief executive officer William Fisher asserted that mortgage choices are based on more than just price.
He compared mortgage shopping to buying a cup of coffee. "If you want an ordinary cup, the value might be 25 cents. If someone wants a Starbucks coffee, they might be more willing to pay a premium," he said. "Putting the differences in one place is a great value" for mortgage lenders and consumers alike.