Online mortgage lenders focus on service
By Sue McAllister
Knight Ridder News Service
In the infancy of online mortgage lending, traditional lenders were caught off-guard by upstart companies that offered a simple way to compare loan rates, apply and get a decision quickly.
Five years later, nearly every bank and credit union has a Web site where customers can do those things, and many of the pioneer online lenders remember iOwn and Mortgage.com? are dead, even if their URLs live on.
But even with the Internet, closing a loan is complicated, and many borrowers still prefer to entrust the task to someone they can meet face to face. So lenders who specialize in online mortgages are focusing more heavily than ever on customer service in hopes that more people will feel comfortable obtaining their mortgages online.
"Four to five years ago, getting a loan from an online lender was equivalent to a root canal," said Anthony Hsieh, president of Home Loan Center and former head of LoansDirect.com, which was sold to E*Trade in 2001. "But the industry has learned. Most of the large Internet companies still in business today are successful because they are able to provide a positive lending experience."
To that end, online lenders have added 800 numbers and "live chat" functions so customers can send queries and get immediate replies. They're using automated property appraisals for some loans; delivering documents over the Internet and using e-signatures; and in many cases sending title officers to customers' homes or offices for the final loan closing.
Customer service is "an absolutely critical component" to success, said Tom Reddin, chief operating officer of LendingTree.
Though his company is not a lender it's an exchange that channels customers to participating lenders Reddin says LendingTree screens its affiliates carefully, then keeps in touch with customers who apply via the site, surveying them about their satisfaction and encouraging them to rate the affiliate lenders online.
Morgan Hill, Calif., homeowner Tony Butterworth has refinanced his mortgage three times in the past two years, using LendingTree or E-Loan each time. (Both companies offer loans from many different lenders.)
"Probably if the first time I'd done it it wasn't easy, I wouldn't have done it again," Butterworth said. "I don't believe I'm getting a better rate doing it this way; I think the process was easier for me. I felt like I was in control of the process."
He has a 30-year jumbo loan (more than $322,700) with a rate fixed for seven years at 5.75 percent. He's saving $750 a month compared with his previous loan.
Largely, Butterworth is a satisfied customer.
The only downside, he said, was that in each batch of offers he received when he applied online, there was at least one unsuitable loan.
"When you called them, there was always one catch that wasn't spelled out," he said. He also sometimes got phone calls from lenders after applying online, although he specifically requested that no one call.
Dolores Avina is less satisfied. Her first experience with online borrowing drove her straight back to a local bank.
With only about six months' experience using the Web, she was eager to use her new skills to refinance the mortgage on her San Jose, Calif., home.
Avina, 54, used LendingTree to find a loan at HomeLoanCenter com. But when it came time to close, the monthly payments were higher than she'd expected, and she felt confused by the closing process. She concedes some miscommunication could have occurred, but in the end she decided not to borrow from HomeLoanCenter.
"I think I'd rather just go to an office and face-to-face somebody," she said.
It's hard to judge exactly how many mortgages are obtained online each year, because lenders use different definitions of what constitutes an online loan.
Data collected by National Mortgage News indicates that about 18 percent of the $940 billion in loans originated in the fourth quarter of 2002 were to borrowers who either applied or pre-applied online.
But a survey by Inside Mortgage Finance Publications showed that about 27 percent of the record $2.5 trillion of mortgage loans made in 2002 originated online $677 billion worth. That was up from 13 percent in 2001.
The figures include both refinance and purchase loans. Lenders surveyed by Inside Mortgage Finance were allowed to use their own definitions of online origination.
Today, many "online" loans are actually hybrids: The customer may start an application online, then eventually complete plenty of old-fashioned paperwork before closing the loan by signing documents with a title company.
Or the customer may call an 800 number to talk to a lender, then the lender will use Internet technology to find loans suitable for that borrower and initiate an application.
"Before the dot-com bust, everybody was touting the incredible power of the Internet and how it was going to be customer-direct and the mortgage brokers were in trouble," said Rich Barfus, chief executive of MindBox, a San Francisco company that designs software for online financial services.
Things haven't happened quite that way, he said, but all of the software and systems that were developed several years ago by the first online lenders did prompt traditional lenders to embrace Internet technology and move more of their services online.
Bill Emerson, chief executive of Quicken Loans, said some studies show that about 80 percent of people obtaining a mortgage say they started by looking at rates online.
"It's the online lender's challenge to start converting more and more of those people," he said. "The opportunity for growth is tremendous."