As the year of the dot-com swoon totters to a close, mortgage-related e-commerce stocks, like the rest of the technology sector, continue to take a beating.

And even among the many battered companies on the Nasdaq now trying to recuperate and hoping for a brighter 2001, the mortgage sector is in particularly bad shape.

FiNet Inc., which changed its business model from a direct-to-consumer lender to a technology provider this year, has seen its stock sink more than 99% and is fighting a de-listing procedure by the Nasdaq exchange. Its shares, trading just above 9 cents on Wednesday, have not been above $1 since July 18., which arguably owned the most valuable domain name in the business, fired its staff on Oct. 31 and has since sold most of its assets to ABM Amro Mortgage Group and an Argentinean lender. On Nov. 1 its stock traded at just above 6 cents, down 99.6% from its high of a year before; on Wednesday, shares hovered at just over 1 cent.

Even the firms considered survivors in the sector — E-Loan Inc. of Dublin, Calif., and LendingTree Inc. of Charlotte, N.C. — have not fared much better.

E-Loan’s stock, which soared above $63 shortly after its July 1999 public offering, has been in free-fall, off 99.2% — to 50 cents this week. LendingTree, whose officials argue vehemently that it is not an Internet lender but a lending exchange, has dropped 88% since Feb. 16, its first day of trading, to $2.125 on Wednesday.

A common refrain among industry observers is that these companies, the pioneers of online mortgage lending, have been far ahead of their time.

While many consumers are flooding the Internet to conduct research and compare rates and prices, almost none are applying for mortgages online. The reason, observers say, is that the online mortgage companies have done little to ease the application process — and may have actually made it more difficult.

“People will only change behavior when the new behavior is more advantageous and simpler than the old way of doing business,” James Punishill, an analyst with Forrester Research, said in an interview. “You will struggle to find one reason why you should apply for a loan online.”

Mr. Punishill said that until the process gets simpler, the online lenders “won’t make any money. What’s been created is a lot of nothing.”

Charlotte Chamberlain, an analyst with Jefferies & Co., said the online mortgage companies displayed uncanny bad timing by joining the business just as the refinance spigot, which provided record volume levels in 1998, was shutting off.

From early 1999, when several of the companies went public, until the last few months, the refinance market has all but disappeared — causing pervasive suffering in the mortgage industry and particularly hurting the newer dot-coms.

Jennifer S. Scutti, an analyst with Prudential Securities Research, said that many of these companies — in the mortgage business and the technology sector as a whole — may have gone public too soon.

“It used to be that a company had to have five years or at least three years of historical data before they could do an IPO,” she said. “And that time frame was shortened to six months during the heat of the dot-com wave.” In a normal environment, she said, many of the mortgage companies that fell by the wayside would have done so outside of the public market’s scrutiny.

Moreover, she said, mortgage technology companies experienced a double whammy in 2000, as both dot-com stocks and financial services stocks fell out of favor. “They were faced with an uphill battle,” she said.

Ms. Chamberlain said the will take a track record and some success for investors and consumers to consider stand alone Internet mortgage companies as offering the trustworthiness of names like Washington Mutual, Countrywide, Golden West.

“That takes some time,” she said. “And with and FiNet going out of business, that doesn't give consumers a whole lot of confidence.”

Mr. Punishill said consumers will continue to go online to research but will execute offline. “Lots of reasons to shop, not many reasons to execute,” he said. “Now that doesn't mean it's going to stay this way, but to date, E-Loan and iOwn and and everybody else, for all of their banging away at this problem, they haven't changed the nature of the business.”

The only way you win that game is by having a ton of volume, he said, adding, “So why are these guys dying? They don't have any volume.”

Yet the shake-out of the last year has left companies, such as LendingTree, Ms. Scutti said, that may have something unique to offer — particularly if advances such as digital signatures take off.

Looking forward to next year, she said, the industry could benefit significantly from the passing of the digital signature legislation.

“I think that will finally allow from application to funding of a loan online,” she said. “That could make a big difference.”

Ms. Scutti said the defining moment for online mortgage companies will be widespread consumer adoption, which could come as early has next year.

“I think we could start changes very soon,” she said. “We could see some optimism improve, and that could prompt greater volume through the online channel than what we've ever seen in the past.”

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