By focusing on what some would say is a futile quest to make first mortgages, dot-com lenders may be missing an opportunity in home equity.

More than half of the mortgage lending sites in Gomez Advisors' top 20 ranking offer home equity products, but only a handful prominently display their availability and several offer them only through partnerships with other institutions.

Internet lenders have built their business largely around mortgage origination and refinancing, both of which are vulnerable to rising interest rates. Home equity loans, which sell relatively well when rates rise, remain a side order on most Web menus.

"There's a much larger market for home equity loans than people realize," said Joseph A. Hausauer, chief executive officer of Keystroke.com in Seattle. "But our observation so far is that home equity lending hasn't rushed on-line."

Scott Happ, president and chief executive officer of mortgagebot.com in Milwaukee, said home equity is a year to 18 months behind the first mortgage business on the Web.

"This whole area is still untapped, but especially the home equity business, which is embryonic," he said.

Lenders say home equity products' many advantages over other home loans include less vulnerability to rising interest rates, more convenience for consumers and lenders alike, and a higher frequency of transaction.

"You have a motivated consumer, a motivated bank, and an easier fulfillment process," said Doug Lebda, chief executive officer of LendingTree in Charlotte, N.C. "It's a product that's made for the Internet."

Jay D. Farner, vice president of sales for Quicken Loans, said most of the refinancing activity obliterated by rising interest rates has migrated to home improvement and debt equity. Because of increased demand, Quicken - a subsidiary of Intuit Inc. of Mountain View, Calif. - has been busy expanding its home equity business in the last 60 days by offering more products and running a national advertising campaign.

Mr. Farner said barriers include the difficulty of finding a secondary market and sorting out the rules.

"There is a different set of laws for first mortgages and second mortgages in most states," he said, "and the laws all vary from state to state." He said many on-line lenders rushed to acquire licenses for first mortgages in every state and only now are looking into the licenses for second mortgages.

Mr. Happ said many sites' inability to offer real-time rates - which he said mortgagebot.com can do - is another hurdle. "Until that happens en masse, the whole business will be handicapped," he said.

Mr. Hausauer said home equity transactions outnumbered mortgage transactions last year and that the business "is No. 1 on [our] list of products to be accessed over the Internet." He predicts it will be the next wave in on-line lending.

Mr. Happ offered: "A home equity loan is an impulse transaction, where a first mortgage is well thought out. The convenience of the Internet should help people satisfy that impulse."


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