In a sharp reversal, mortgage.com is abandoning direct consumer marketing and will focus entirely on a business-to-business strategy.

The change in direction underscores the difficulty many on-line lenders have had in lending over the Internet - and gives fresh ammunition to critics of customer acquisition and branding strategies that try to attract borrowers to mortgage Web sites. "If you're trying to brand a financial service, history has proven that you will fail," said Doug Naidus, chief executive officer of MortgageIT.com, of New York. "The war of who wins on the Internet will be decided by the ability of companies to find cost-effective ways to acquire consumers, and we feel business-to-business is the best strategy."

Mortgage.com of Sunrise, Fla., made its strategy change public Monday as it announced a net loss of $46.9 million for 1999, up almost 800% from the 1998 loss.

Another on-line lender, Chris Larsen, chief executive officer of E-Loan of Dublin, Calif., suggested that mortgage.com was "making a big mistake. I wonder where their passion is," he said. "You can't just buy a [domain] name, throw in some dollars and in a couple of quarters throw in the towel."

Mortgage.com is not alone, however.

FiNet.com of San Ramon, Calif., after an eight-month branding campaign, announced last week that it has switched to a business-to-business strategy. Gary Palmer, chief financial officer of FiNet, which took a net loss of more than $35 million last year, said his company found that few consumers were willing to get a mortgage over the Internet. "We found it was throwing money down a hole" to spend on branding, he said.

Ed Johnson, mortgage.com's chief financial officer, said that after a $10 million branding campaign in 1999, mortgage.com came to the same conclusion. The campaign was launched in June and ran until November, though "we concluded by September that we weren't getting the loan volumes to justify the program," he said.

Mortgage.com is now focusing on establishing partnerships with real estate agents and homebuilders who would steer their customers who need loans to mortgage.com. "It's too expensive to brand and to acquire a customer directly," he said. "It's a lot more cost-effective to acquire loan volume through other businesses, like point of sale."

To be sure, some companies, such as E-Loan and LendingTree, are convinced that their products and services can be branded.

Thomas J. Reddin, chief marketing officer for LendingTree of Charlotte, N.C., stressed that his company - which recently embarked on a $40 million branding and advertising campaign - is a marketplace, not a lender. Mr. Reddin argued that LendingTree offers a unique service that can establish a brand by empowering the consumer.

"Our whole brand proposition, offering a marketplace where banks compete for business, really resonates with consumers," he said.

Increasingly, however, the prevailing wisdom is that branding and direct consumer marketing are anathema in the on-line lending industry.

"Individuals like to shop and use on-line resources for research," said Mr. Palmer of FiNet, "but then they go to someone local because they don't want to disclose their financial information over the Internet."

He argued that there is no compelling reason for customers to seek a mortgage over the Internet, given that mortgage brokers have matched on-line prices and can offer more localized, personal service. "Real estate is local," Mr. Palmer said. "San Francisco is not the same as Alabama, and it's very hard to build a localized Web site."

To address this issue, Quicken Loans, a subsidiary of Intuit Inc., in December 1999 acquired Rock Financial Corp., which lends in all 50 states. Though Rock does not maintain a presence in every state, its call center in Detroit has 400 specialists who Quicken says will offer personalized attention to borrowers. Allison Mnookin, group project manager for Quicken Loans, acknowledged the difficulty of addressing differing local requirements but said Quicken can effectively lend to every corner of the country.

Several officials said that because consumers can go years without needing a home new loan, direct consumer marketing amounts to a waste of resources. "A [mortgage] business will fail spending millions on direct marketing, because of the infrequency and complexity of the transaction," said Mr. Naidus of MortgageIT.com.

Scott Leon, chief marketing officer and vice president of OnLoan.com in Fort Lauderdale, Fla., agreed, arguing that a mortgage loan is not a consumable product like food, which people buy every day.

"You're not going to build a brand through advertising," Mr. Leon said. "You build a brand by providing top quality product and service."

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