The outlook keeps getting grimmer for the online mortgage industry, as massive losses continue to mount and a growing number of firms abandon direct consumer lending for business-to-business strategies, which venture capitalists now prefer.

Last week of San Francisco fired almost 140 employees and ceased its mortgage origination operation to focus on becoming a "homeownership destination" and broker network. of Fort Lauderdale, Fla., said Tuesday that it plans to jettison its consumer origination operation and Web site to focus on providing technology to other lenders.

Though OnLoan officials believe that a sale of the origination assets could come to fruition this week, shutting it down and firing employees remains a possibility, a spokesman said.

Why are these lenders in trouble? "They don't have any volume," said James Punishill, an analyst at Forrester Research in Cambridge, Mass.

While the Internet is changing practically every business, consumers have been reluctant to conduct certain big-ticket transactions online, including mortgages. Though borrowers are using the Internet to research and compare rates, Nick Karris, an analyst at Gomez Advisors, said only 1% are closing loans with online services.

Mr. Punishill said this is as much of a problem for those companies that shifted their focus to providing lending technology as it is for those still trying to originate loans themselves.

"Until the product changes, until the process improves, and until there is a reason to change behavior, consumers won't change. So B-to-B, B-to-Q, B-to-whatever, it just doesn't matter. Until there are B-to-C originations, they won't make any money," he said.

Mr. Punishill said that, while he believes that Internet-based mortgage lending can ultimately work, existing players have failed to drastically change or improve the nature of the business, which remains crucial to encouraging Internet transactions.

"People will only change behavior when the new behavior is more advantageous and simpler than the old way of doing business," he said. "Nothing is different about getting a mortgage online from getting a mortgage offline."

One of the major hurdles lenders face is the fact that mortgage lending is a scale-based, commodity business, Mr. Punishill said. The only way companies can earn a profit is by producing a ton of volume, which few lenders have been able to do, because borrowers are not closing over the Internet.

However, Mr. Karris argued that the Internet already offers the borrower tremendous value, including instant approvals, risk-based pricing, locked rates, 24-hour loan status, and performance guarantees.

"There are compelling value propositions that you can't find offline," he said. "And it offers the consumer enough to give up local service. It's a trade-off that's worth making."

Privacy concerns and unfamiliarity with new brands stand in the way of consumer adoption, Mr. Karris said. Real estate agents and home builders, who often influence borrowers' decisions about what lenders to choose, have emerged as another obstacle, he said.

These professionals often are not computer-savvy and prefer to send customers to someone they know to ensure that they get their commissions, Mr. Karris said. "They want someone local for accountability, and that's a fundamental challenge," since fewer than one third of Realtors even use e-mail, he said.

In the first half E-Loan,, LendingTree Inc., and, four prominent, publicly traded online mortgage companies, lost a combined $120 million.

Finet, of San Ramon, Calif., which shifted to a business-to-business strategy in February, has seen its stock plunge 96% since April 1999. The stock fell below $1 per share on April 14 and has spent only six days above $1 since. It closed trading Wednesday at $0.5625.

The stock has spent 25 straight days under $1. If it does not rise above $1 in the next five trading days, Nasdaq will impose a 90-day probation that could lead to a de-listing.

In announcing its second-quarter loss last month, E-Loan said it would move away from its branding and marketing efforts to concentrate on capturing existing traffic to its site. That move led ING Barings and UBS Warburg to downgrade its stock.

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