E-Trade Financial Corp. began offering a faster home equity lending process on its Web site Wednesday.
Its EquityExpress program guarantees that closing papers will be sent out within 24 hours of approval, to be followed by funds within a week.
The New York online brokerage and banking company, which conducted a test of the program last month, says these faster loans and lines of credit should garner additional business. “We are using technology to provide something of value to our customers,” said Steve Gutterman, E-Trade’s chief operating officer.
But Christine Pratt, a senior analyst with TowerGroup, the Needham, Mass., research unit of MasterCard International, said accelerating the approval and funding process might not attract new customers.
“I honestly don’t believe it’s something customers want,” she said. “The biggest problem that most banks have with home equity lines of credit is that people don’t use them. They want them for reasons that are not immediate,” so few consumers may be concerned about receiving the money within a week.
Even worse, the program may attract customers E-Trade may not want.
Adam Josephson, an analyst at the Boston market research firm Celent Communications LLC, said that even though he does not consider the speed guarantee “earth-shattering,” it would appeal to “those needing liquidity in a relatively short period.”
Ms. Pratt agreed that EquityExpress “would appeal to a customer who might be in a lot of trouble financially.”
Mr. Gutterman said E-Trade’s customers generally do not fit the profile of a customer in distress. People who come to an Internet bank “generally speaking are more affluent, more educated, and technologically savvy,” and therefore less likely to be in dire financial straits.
Before the program was launched, the typical E-Trade home equity customer returned loan forms in four to five days, he said.
Jerome Selitto, the chief executive of DeepGreen Bank, a Cleveland online savings bank, said its home equity customers are not particularly concerned about speed.
“When we first started, we closed within five days, and there was very little demand for that,” he said. “If somebody needed to close faster than that, it’s kind of a red flag.” Seventy-eight percent of DeepGreen’s customers do not even ask to close the loan or line of credit in the same month it was approved.
DeepGreen customers get a decision within two minutes, and it takes another 48 hours to confirm ownership of the home. The customer then selects the closing date. Funding takes 12 days.
“We’ve certainly never had a customer complain about the length of time it takes to get funding,” he said. “The reality is if they do, you probably should be doing some additional security work” to make sure you are not lending to a fraudster or to someone who cannot pay it back, he said.
Ms. Pratt said a more significant selling point for the program is the 25-basis-point discount E-Trade offers to customers who repay their loans through an E-Trade Bank or E-Trade Securities account.
Instead of speed, “what customers want is the price break for going online and doing it themselves,” she said. They take out a line of credit primarily for financial security — to know that they have instant access to money when they decide to use it.
Though the speed of closing or funding is not as crucial to customers, a fast answer is, she said. Many banks now offer nearly instant approval, or they pre-approve applicants they already know. Closing and funding come later.
Fraud is a big concern with home equity loans, especially those approved and closed quickly, Ms. Pratt said.
Real estate loan fraud accounted for only 1% of the fraud reported by consumers last year, according to the Federal Trade Commission. But Ms. Pratt said the amount of money banks lose makes it one of the most expensive types of fraud.
“Real estate fraud is huge in terms of dollars,” because stealing the value of a house gives crooks substantially more money than they would get from the average wallet full of credit cards, she said.
Mr. Selitto said that to protect against fraud, DeepGreen sends a notary to the home to have the final papers signed. Even after the title check, he wants this extra step — which is marketed as a customer convenience — to assure that the loan or line of credit goes to the proper homeowner.
E-Trade requires customers to find a notary themselves, but it will provide a list of local ones.
