Booming Web business.

Author:McWilliams, Charlyne H.
Position:Cover Report: E-Commerce

The mortgage lending industry is getting more and more wired with each passing month. This snapshot of 10 lenders shows the refi boom has pushed online lending to new prominence. The group includes CitiMortgage, Countrywide, DeepGreen Bank, E-LOAN, E*Trade Mortgage, GMAC Mortgage, Regions Mortgage, Quicken Loans, Wachovia Mortgage and WaMu.

IF ANYONE WERE TO TAKE THE ECONOMY'S TEMPERATURE using the mortgage industry as a thermometer, it would yield a reading hotter than a mid-July day. And despite other economic indicators pointing to sluggishness, consumers are still rushing to buy homes and refinance.

* Low mortgage rates along with consumers' growing comfort level with the Internet have pushed online origination volumes upward. Online mortgage providers also attribute their growth to growing acceptance by consumers of the concept of completing more of their financial transactions online. And yet, while online origination numbers are large, they are not as great a share of total volume as mortgage experts anticipated.

* "A lot of customers are going back to the person who did their initial loan," says Craig Focardi, senior analyst, consumer credit, at TowerGroup, Needham, Massachusetts. "And then it's hard to analyze the data because lenders have different ways of coming up with the numbers. You don't know whether the loans are pure Internet or if they originated in the call center," he says.

* According to TowerGroup's most recent statistics, online originations are 4.6 percent of total originations, accounting for $110 billion in volume. This number is up from 0.8 percent in 1999, which translates to $11 billion in originations.

There are several reasons for the slower-than-expected increase in online originations, Focardi says. One factor is the "fragmented nature of the business." Instead of customers being able to go directly to the funder of the loan, many times they have to go through brokers, a wholesale lender and then the investor. This complex food chain does not make the online channel conducive for doing large-scale business.

In addition, Focardi says, the mortgage process is so lengthy and data-intensive that providing personal information to a computerized system is still difficult for some people. "People are still comfortable with the fax and phone when they refinance, and they want to make sure they get the best deal," says Focardi.

And while the business-to-consumer (B2C) portion of the online origination market has been slower to catch on, the business-to-business (B2B) portion has grown at a much faster rate, Focardi says. Companies have created connections with third-party vendors such as credit and appraisal.

The latest forecast from the Mortgage Bankers Association of America (MBA), Washington, D.C., calls for a strengthening economy next year that will work to edge mortgage interest rates back up. MBA Chief Economist Douglas Duncan forecasts that this year's origination numbers will be close to $2.42 trillion. Residential mortgage volume is expected to dip to $1.77 trillion next year.

Looking a bit further out into the future, TowerGroup estimates that in 2005, online originations will account for 12.8 percent of total originations, generating $246 billion in volume.

Many lenders still have much work to do in order to see substantial growth in the online marketplace, Focardi says. But many of the leading online lenders already have these online approvals, account tracking and some form of online signaturing in place or plan to implement them in the near future, he adds.

"Consumers want the online process to be better and faster than the traditional one," Focardi says. "Lenders can do this by adding the convenience of saving partially completed applications. Sometimes a consumer doesn't have the luxury of completing [the online application] in one sitting.

"Then, providing electronic signaturing and the ability to track the loan processing status are essential," says Focardi.

Some lenders we profile already have included these and many other features to make the online process as simple as possible. And many of them are preparing for life after this extended refi boom. Listen to what they have to say.

CitiMortgage Inc.

While CitiMortgage (, St. Louis, has been able to generate $500 million in pure Internet volume (roughly 2,500 loans), it has focused on using the medium to supplement the branches.

"For the next year, our greatest focus for the Web will be as a powerful retention tool," says Steven Stein, executive vice president of lending at CitiMortgage. "Retention seems to be the most robust use of the Internet, because customers can use it as a source of fulfillment. The modifications we make will be geared to returning customers," says Stein.

CitiMortgage was able to gain its core functionality from its purchase of, a pioneering online lender that shut down in 2000. The company plans to expand its service offerings in the next 18 to...

To continue reading