The booming market for on-line mortgages is causing lenders to reluctantly embrace the reality that they are becoming a line on someone else's Web site.

The proliferation of so-called "mortgage consolidators" on the Internet- run by everyone from banks to loan brokers to technology companies-has opened a new chapter in the way mortgages are selected and purchased.

The earliest adopters see the need to embrace the technology in order to shape it to their own advantage.

"The name of the game on the Internet is distribution," said Jack Rodgers, president of the consumer direct group at First Mortgage Network, a Plantation, Fla., wholesale lender. "You have to have as many opportunities as possible to aggregate eyeballs."

For many mortgage originators, that means being in as many places on the Web as possible.

"It is not a question of if, but when, the Internet will catch on," Mr. Rodgers continued. "Will it be customer-direct or will it change traditional customer relationships? The answer is both, and we are involved in all aspects of it."

For some, that day is already here. Killen & Associates, Palo Alto, Calif., estimates that 1% of the $1 trillion in 1998 mortgages will be obtained on-line and projects that percentage to rise to 30% within the next seven years and possibly total $300 billion.

"Our perspective is that this is going to be big," said Bruce J. Cornelius, director of electronic commerce at Fannie Mae. "A small percent of a big number is still a big number."

Even if it fails to meet those lofty expectations, almost every lender of note is seeking to hone its strategy of dealing with the mortgage consolidators' impact upon the marketplace. The field may be divided into at least three groups: lenders and their allies, including bank-run consolidator sites like HomeByNet and Monument Mortgage's iQualify service; consumer technology companies such as Intuit Inc. and Microsoft Corp. and their Quickenmortgage.com and HomeAdvisor sites; and broker-based sites such as E-Loan and HomeShark Inc.

Even some lenders who sense opportunity on the Web are skeptical about losing control to consolidators.

"Mortgage banks have got to take commerce on the Internet seriously," said Gene Devine, senior vice president, of Eastern Mortgage Services Inc., Trevose, Pa., which began offering mortgages from its Web site in 1995.

But for Mr. Devine, the Internet dictates a simple strategy: work only with those you trust. Besides promoting mortgages on its own Web site, the company participates only in the network recently assembled by LendingTree Inc. of Charlotte, N.C., arguing that other consolidators have not proved cost-effective for lenders.

Other lenders take a more sanguine view, notwithstanding some disappointing early returns.

"There has to be a certain volume for us to reach a break-even point and make a profit, and we have yet to reach that point," said D. Robert Davis, vice president at HomeSide Lending Inc. in Jacksonville, Fla., which participates in both Quickenmortgage and HomeAdvisor.

"We are building the channel and making an investment in a future that is going to grow significantly," he said.

"We view this as a healthy way to understand early in the process how some of these newer distribution channels might work," said David C. Everett, vice president of nationwide lending and chief information officer of Principal Residential Mortgage Inc., Des Moines.

Also participating in both Intuit's and Microsoft's sites, he said Principal believes it important to be involved in as many sites as possible because of the qualified leads that they bring.

"This medium will allow the consumer more information by the time we become involved," Mr. Everett said. "The idea is that more work will be completed by the time the application reaches us."

Other established lenders have taken a more direct approach. In March 1997, Banc One Corp. launched HomeByNet, a Web that attempts to emulate the features of a multilender site by offering its own mortgages side-by-side with those of Citicorp, BankAmerica Corp., HomeSide, and GMAC Mortgage Corp.'s HomeComings Financial Network.

Even Fannie Mae is getting in on the picture. Working with FiNet Holdings Corp.'s Monument Mortgage and its iQualify Web site (which won this year's Computerworld-Smithsonian Institution Award for financial information technology), officials at the secondary market agency hope to enable lenders to avoid losing ground on the Internet.

"Lenders are the entrenched group," said Mr. Cornelius. "They have it all to gain or to lose, and they don't want to give up channel space to competitors," including brokers and technology companies.

"We are trying to give them the tools and technology to help them succeed," he said.

Besides the iQualify service, which guarantees to on-line consumers that mortgages they select will be underwritten by Fannie Mae, the agency has also launched the homepath.com site with free listings and links to all of its seller-servicers on the Web.

Boasting of its bank-friendly credentials, the recently incorporated company is supported by Bann-Cor Mortgage, Dime Savings, GreenPoint Financial, PNC Bank Corp., National City Corp., Zions Bancorp, and First Morgage Network's American Finance and Investment.

"LendingTree is a marketplace in the truest sense-we bring borrowers to a group of lenders that bid for their business," said Douglas R. Lebda, founder and president.

"You do not chose from among a list of interest rate programs, and apply for that loan," he said. "In the consumer's mind, this is a totally new way to get a loan because you are putting information out for a bid. Each lender is underwriting it as if it went into its call center."

Boasting a patent on its filtering software that accommodates both subprime and conventional mortgages, the system's risk-adjusted prices has attracted lenders that other systems have not.

"The factors we considered were cost, the number of referrals, and who would own the customer and have the ability to cross-sell," said A. Scott Anderson, president of the Salt Lake City-based Zions. "It was a cost- effective way to test out the Internet for mortgages."

But some observers argue that financial institutions are increasingly recognizing that their own sites simply will not have the same draw of so- called "portal" sites of name brands like Microsoft and Intuit.

"The financial institutions have all come to recognize that they can't drive traffic to their sites while some of these consolidators are reeling in the fish-they are bringing in highly qualified traffic of people looking for mortgages," said Gary Craft, senior research analyst with Robertson Stephens in San Francisco.

With a nine-month head start, Intuit's Quickenmortgage has 11 lenders to Microsoft HomeAdvisor's four. It has obtained brokerage licenses in all 50 states, and recently invested in First Mortgage Network to facilitate back- office processing capabilities.

Eschewing the customary fees of 1% to 1.5% of the mortgage's value, Intuit charges 40 basis points, then rebates $225 to the borrower when the deal closes.

Microsoft officials, still in the process of establishing broker licenses, have more ambitious goals for HomeAdvisor. It aims to include real estate listings, neighborhood demographics, and crime statistics in addition to mortgage comparisons.

Both companies also charge lenders a start-up fee for participating in the sites, which they each declined to disclose.

Although numbers of individual use are hard to come by, all estimates point to substantially higher numbers for independent consolidators than for bank-led initiatives.

The fungible nature of a mortgage makes it difficult for an institution like Countrywide to attract attention to its Internet origination strategy, Mr. Craft said. Other large providers aren't even offering on-line rates. Chase Manhattan Corp.'s Web site, despite copious information about the mortgage process, refers individuals seeking a mortgage to an "800" number, a branch, or placing a call-back request.

Mr. Craft poses the dilemma facing lenders: "Do I attempt to go it alone and ignore the clarion call for search and selection or partner and take my chances relative to other mortgage funders?"

But the question itself may be increasingly moot in a world little removed from a commodity price business.

"Because it is a once-in-every-seven-years purchase, there is some question as to whether anyone in the mortgage business has a brand," said First Mortgage's Mr. Rodgers. "We don't have any Clorox or Kleenex brands."

"The mortgage business has disintermediated itself over the past five years, with many lenders offering loans retail, wholesale, correspondence, and through brokers," said Mr. Rodgers, whose American Finance and Investment division expects to fund $1 billion in loans this year, up from next to nothing three years ago.

But notwithstanding American Finance's participation in Quickenmortgage, HomeAdvisor, and potentially the LendingTree, it won't support the loan- broker model epitomized by E-Loan's 60 lenders and HomeShark's 16.

Advocates of this model argue that it is best for "financial institutions looking as a new distribution channel that is more efficient than in current wholesale channels," said Charles E. Reed, vice president of lending services for the San Francisco-based HomeShark.

But Mr. Rodgers argues that "every lender in America is a multi-lender platform in the same way that E-Loan and HomeShark are, except that they do not present that to the public. The advantage of lenders is that they control the process all the way through to completion, while brokers can't, for example, waive documentation and conditions in an hour."

"We have the ability to deliver a new Internet experience for consumers," he said.

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