Online mortgage startup Home-Account has licensed the refinance.com domain name and today launched a new, free service for people seeking to refinance their homes (press release).

The domain name was formerly that of Homebridge Mortgage Bankers Corporation, which had acquired the name for more than $700,000 in 2005. But in the 2008 mortgage meltdown, Homebridge went out of business and the valuable domain name went unused throughout 2009.

Home-Account is a 2009 Finovate alum (video here and here) specializing in helping consumers navigate the confusing mortgage marketplace. The startup uses an online system to assess a home loan applicant's suitability before they apply. It then provides advice and assistance in finding the best mortgage. The company contracts with mortgage lenders to provide firm price quotes at the end of the process. Lenders pay Home-Account a fixed fee for each mortgage.

The startup has enlisted noted mortgage finance expert Jack Guttenberg, also known as the Mortgage Professor (link) to endorse the service.

How it works:

1. To begin the process, simply enter a Zip code.

2. Complete a three-part online application detailing personal financial info (including social security number), info on existing mortgages, and a short "mortgage personality" quiz to help match buyer needs with mortgage options (e.g., fixed vs. variable rate).

3. Confirm identity using info from credit files.

4. Home-Account then pulls a credit report using a soft pull that does not show as an inquiry on the borrower's credit file.

5. The site provides a loan-eligibility score, a few quick tips on improving credit qualifications, and firm loan offers including rates and all fees from qualified lenders. The borrower reviews the various offers side-by-side, a feature that should provoke healthy competition among the lenders.

6. If the borrower decides to move forward, they click on their desired loan to lock in the offered rate.

7. The selected lender then closes the loan directly with the borrower.

At launch, several lenders are offering loans through the system including: GoodMortgage.com, RoundPoint Mortgage Company, Eagle National Bank and First Choice Funding.

Analysis: The mortgage shopping and refinance process is still a mystery to a large percentage of consumers. It is difficult to compare prices while shopping, and the myriad of fees tacked on during the process can leave a bad taste with the borrower. Consumers rarely know if they truly received a fair deal when all is said and done. The Home-Account/Refinance.com solution promises to add more transparency during the entire mortgage process. That's welcome news to scandal-weary American consumers.

However, convincing skeptical consumers to trust its mortgage-recommendation engine will be a major challenge for Home-Account. Third-party endorsements, and possible integration with financial institutions or personal finance tool providers, will be vitally important.

Refinance.com #1 - The site grades loan eligibility ...

Refinance.com #2 - ... and suggest ways to improve it.

I was so enamored with ING Direct's Black Friday mortgage special, 5 years at 3.75%, that I applied online that day (Nov. 27) and have been going through the mortgage refi process for the past month. To determine how the loan is progressing, applicants may call a toll-free number or check their loan status online. While the online option is a little hard to find, it's convenient, at least in the early stages of the process.

The loan-status feature is buried in the Open an Account page at the bank's main website (see screenshot #1, below). Applicants log in with their customer number and last four digits of their social-security number (screenshot #2). The bank recaps the loan info and displays a quick checklist of the major steps in the process (screenshot #3): 

• Application submit date
• Preliminary decision date
• Document ship date
• Loan offer acceptance
• Documents received
• Home appraisal completed
• Title search completed
• Closing date scheduled

The popup also contains a handy link to an FAQ explaining all these items, but it is missing a logout button.

Analysis: ING Direct's online loan status is an important customer convenience. It worked great during the first few weeks while the important milestones were being reached. But now at the end of the process, I'm still left wondering what's going on. There is one orange ball left uncompleted on the list, the all-important closing date. So 32 days after I applied, I still don't know whether underwriting has signed off on the income verification, appraisal, and title search, all very real concerns for customers these days.

The bank has sent only one email during the application process, a short message on Dec. 22, confirming that all the documents have been received.  Given that my 30-day lock period expired over the weekend, the bank definitely needs to improve the frequency and timeliness of its communications. 

Overall, it's a respectable effort, but not up to the high levels of online support I expect from ING Direct.

Grades: B for the loan-status tool; B- for location, and C- for proactive customer communications

1. ING Direct applicants must find the tiny link on the Open an Account page (link; 29 Dec 2009)

2. Popup loan status login screen

3. Loan status popup

Have I mentioned that the iPhone is amazing? I'm not sure if it's because it's so useful having a computer in my pocket 24/7, or that it gives me so much material for Netbanker and Online Banking Report (probably the latter).

Now that we are beginning the second year of the App Store, we are starting to see some more interesting things on the finance front. For the first year it was all about tip calculators, balance inquiry, ATM locators, and manual-entry expense trackers.

This summer, we're beginning to see the bigger potential with the launch of remote check depositing from WV United Credit Union and USAA (which also loaded helpful auto insurance features into its app). And Apple's new OS 3.0, which supports push notifications, will be a boon to mobile banking apps.

But that's just the beginning. There will be an app for anything you might want to do with your finances. The latest: a free Home Loan Toolkit for prospective home buyers from ING Direct Australia. The app appeared in the U.S. App Store yesterday (here).  There's no mention of it on the bank's website yet, but Google pointed me to the well-designed microsite (here) supporting the app (screenshot below).  

It's pretty straightforward with just three functions:

• Calculators to determine how much you can afford to borrow and what the payments would be
• A call-me request form
• Average home prices by area

Screenshots from ING Direct Australia's new iPhone app (3 Sep 2009)

ING Direct Australia iPhone Home Loan Toolkit microsite (link, 3 Sep 2009)
Note: The five iPhone screenshots (above) rotate through the iPhone pictured below. Alternatively, users can scroll through the screens with the control under the phone.

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Note: For more info on the native iPhone apps, see Online Banking Report: Mobile Banking via iPhone.:

Thanks to information in LendingTree's lawsuit (embedded below) against its rate-engine provider, Mortech (see note 1), which was picked up by the NY Times, then echoed across the Internet, Google appears to be looking at providing loan rate comparison/aggregation directly in its search results. The service appears to have been beta-tested in the UK more than a year ago (screenshots here).

It's no surprise Google would make this move. It's long worked on ways to help online shoppers compare products and services. For example, a search today on "air conditioner" displays the usual targeted text ads on the top and right, but also shows various "shopping results" in the middle of the page (see screenshot below). There are even catalogue-like thumbnails in the right-hand column, something I'd not noticed before.

Financial services, with heavy search volumes, are an obvious area for expansion by the search giant.

The LendingTree lawsuit says the service may launch within the next 30 days. Google says only that it is "currently working on a small ad unit test that will run against a limited number of mortgage-related search queries in the U.S."

What it means to NetBankers: The service, if successful, could help users streamline their rate-research process by eliminating a visit to a loan-comparison site. But it's not likely to have a material impact on banks, credit unions and other mortgage lenders. There will just be more advertising dollars ending up in Google's pocket at the expense of other financial lead-gen sites such as BankRate.com, Interest.com and LendingTree, of course.

LendingTree complaint

Search results for "air conditioner" (27 Aug 2009, 3 PM Pacific, from Seattle IP address)

Note:
1. LendingTree claims that Mortech, an info provider to LendingTree, would be in violation of its contract if it provided similar technology to Google. See LendingTree's press release on the matter.

Usually, it's the big ideas that get all the press. Last week alone, Microsoft launched a new search engine (Bing), Google announced a new way to communicate (Google Wave), and Facebook began rolling out an alt-payment service to its 200 million users. 

Those have intriguing long-term ramifications, but can they save you money today? 

Here's something a little more pragmatic: A tool that promises to make it easy to challenge your tax assessment, potentially saving hundreds or thousands of dollars annually. Enter LowerMyAssessment.com (LMA).

I saw a few screenshots of the service during the company's application to debut at FinovateStartup 2009 last month (demo video here). But I couldn't use the service until a few weeks ago.

How it works
Consumers visiting LMA can use the website's free tool to check their home's value against current market estimates. LMA taps public databases to determine tax-assessed values and calculates market value from various third-party sources such as Zillow.

The company then makes the simple math calculation and informs users if the value of their home is under the tax-assessed value. If it is, LMA provides forms and instructions to challenge tax assessments with the local assessor's office.

In our test case, using an address in Seattle, one of 10 states currently served by LMA, we were told that its assessed value was $300,000 more than the market value (note 2). LMA encouraged me to register and let them help me challenge that assessment.

Registered users complete an online form with info needed to challenge their assessment (see screenshot 3 below). After completing that form, users must pay $125 to complete the challenge process and receive their FairValue Report (shown above).  

Analysis
While the cost-saving potential is significant, the challenge for LMA is getting consumers to shell out $125 for something they can conceivably do themselves (note 3). It took us just a few minutes using Google to uncover the challenge forms and procedures at the King County website. And market value estimates can be pulled from Zillow and its competitors.   

To reduce sticker shock, the company recently removed the big $125 price tag from its homepage (see screenshot 1) and is now emphasizing the free lookup feature (screenshot 2). I can understand downplaying a three-figure fee, especially online. But now they've gone too far the other way. I cannot find the price of the service anywhere on the website. It wasn't disclosed until I completed my registration and filled out the challenge form (see screenshot 4 below).

There's also the small matter of getting the word out. The major market opportunity will largely be gone once home prices get back to their pre-recession levels, even though there will always be cases where consumers feel their assessment is unfair. But LMA needs to team with major financial or real estate firms as soon as possible to reach large groups of potential customers. 

Bank and credit union opportunities
As discussed in previous posts, direct fee income is scarce in online banking, at least in the United States. Aside from credit bureau monitoring, there are few up-front fees that consumers are willing to pay. Certainly, banks earn billions from the underlying checking, debit, and credit card accounts, but nothing from the value added online.

It's possible the service could be replicated by a bank or mortgage provider using available APIs from Zillow or others. But for most banks, it would be far simpler to outsource the service to LMA or other specialists.

If the service were sold for $100+, with revenue shared 50/50, a bank or credit union could earn a respectable profit while providing a unique and free service to customers; however, the folks at City Hall may not be so appreciative. If city government is a big customer, you might tread carefully here.

1. New LowerMyAssessment homepage emphasizes free (2 June 2009)

2. Previous homepage disclosed the substantial fee up-front (12 May 2009)

3. Online appeal form for King County Washington (2 June 2009)

4. $125 (+tax) fee is not disclosed until checkout (2 June 2009)

Notes:
1. States currently covered: Arizona, Florida, Hawaii, Illinois, Indiana, New Jersey, Ohio, Oregon, Washington
2. That was on May 11. Now, three weeks later, LMA shows the house having declined another 20%. Home prices are certainly fluctuating, but not that much. It appears that LMA has switched to using Zillow's low estimate instead of the mid-range one. That may help sell more services, but it's a bit misleading. It would be much better to show the range of potential market values pulling data from all three third-party valuation sites, in much the way RedFin does. 
3. They also have some work to do in clarifying the buying process. It's not really clear exactly what you are buying at checkout. Are you submitting a property-tax challenge at that point? What about the FairValue Report? When do you see that? But we'll cut them slack on that since they just launched a few weeks ago.

Every time I visit Quicken Loans, I find something else to like about this lender's online efforts (previous coverage here). Here's the two latest from today's homepage:

• News flash on homepage announcing today's rate action at the Fed, complete with brief mortgage sales pitch (middle of page). This screenshot was taken at 3:30 PM Pacific Standard Time, about four hours after the Fed decision was announced.
• Call center wait times posted. Each time I've checked (today and last week), it said "Wait time is less than 10 seconds." (upper right corner ... see also closeup below). The 800-number is part of the header across every page.

Close up of call center area in upper right:

Two years ago, computerized personal financial management was a two-horse race: Intuit's Quicken vs. Microsoft Money. Both full-featured. Both relatively easy to use. But both were packaged software apps, clearly not the future of consumer computing.

Fast forward to 2008: We now have two dozen startups, several banks, and other financial stalwarts, offering online personal finance of every size and shape (see Online Banking Report 142/143 and 131/132).

The latest entrant: Quicken Loans, which launched an open beta of Quizzle, an online budget and personal finance portal that features home values, mortgage advice, and free credit reports/scores from Experian (see note 1).

Quizzle also calculates what it calls your Quizzle score based on your credit score, home value, savings, debt, and household income/expenses (see second screenshot, below). Debt payments are imported from credit report data, but users can edit the information or add other items to improve the results.

Quizzle also provides home-value estimates calculated from public records, but in my case, it's no Zillow, and listed a home value that was significantly wrong (see note 1).  But it's simple to edit the number with your own estimate. Quicken Loans should consider tapping Zillow's API to provide a second opinion.

The sign-up process
Signup is simple with users providing name, address, birth date, email address, income, and home-purchase date. Email address is verified with a message that must be confirmed. Then identity is verified online using data pulled from the Experian credit bureau.

This is the same procedure used by every online credit-report provider with one huge exception. Quicken Loans DOES NOT REQUIRE A SOCIAL SECURITY NUMBER, a huge usability and privacy gain. The company is allowing credit-report access based on a name/address/birth date match. That's a welcome improvement for the user.

Analysis
There are a few rough edges in the tool. The home-equity portion is not well explained. In my example, my home value was shown to be about $50,000 more than the loan balance. However, in the equity portion of the tool, it showed that my home equity to be zero. Evidently, the site uses an 80% LTV criteria to calculate the amount of home equity available to lend against. While that's a perfectly reasonable assumption in today's credit environment, it should be spelled out in detail.

But overall, it's a great tool. The really free credit report and score alone are enough of a payback to gain consumer usage. The rest of the Quizzle score is less useful, but still interesting. And seeing it all in one place is fantastic. It will be interesting to see how Quicken Loans pulls me back to the site in the future.

Quizzle is off to a great start, and I look forward to seeing more companies, including banks, credit unions, and card issuers, integrate credit scores/reports into their online offerings (see note 2).

Overall scores:
    Look and feel (user interface) ==> A
    Credit information ==> A+
    Other tools ==> B
 

Quizzle home (18 Feb. 2008, prior to entering a ZIP code)

Overview pages showing the makeup of the overall Quizzle score
(upper right)

Note:

1. Quizzle uses a 900-point scale for credit scores, padding 50 points to everyone's score compared to Fair Isaac's FICO that tops out at 850. This makes you feel a little better about your score. No doubt, credit score inflation will continue, with someone using a 1,000-point scale in the near future. 

2. WaMu has provided free credit scores to credit card customers for several years.

One of the great promises of the Internet is a better shopping experience. While most retail products have indeed become easier to shop for—think automobiles or vintage postcards—the financial services experience is still a mixed bag.

It's certainly much easier to compare savings rates online, a capability that has fueled growth at ING Direct and others. But loans are still much harder to shop for. The lead-generation sites, such as BankRate, GetSmart, LendingTree and Interest.com, have made it easier to contact multiple lenders, but in most cases, the customers still has to select a single lender, complete an application, and hope that there are no nasty surprises at closing in the form of extra fees or higher rates.

However, Mortgagebot is about to change all that and hopefully usher in a new era of transparency in mortgage pricing, with the launch of Mortgage Marvel, making its debut at our FINOVATE conference tomorrow.

How it works
Mortgage Marvel is a destination site where mortgage shoppers can search and find actual rate and fee information for participating lenders, usually at a nearby bank or credit union. And there is no personal info required, just the loan amount, property value, and zipcode. If the shopper finds what they want, a simple click on the APPLY button sends them directly to the lender's application to lock in the rate and fees listed (see screenshot below).

The key to making the marketplace work is having a wide variety of participating lenders with recognizable brand names at the local level. Normally, that's extremely difficult. But Mortgagebot, with more than 700 bank and credit union clients on its mortgage platform, can plug its existing client base into the exchange with ZERO systems integration (note 1). Currently, there are 250 lenders on the system.

And Mortgagebot clients have little to lose by placing themselves into the exchange which for the most part, only charges fees when mortgages are originated through the marketplace.

Right now, all mortgage lenders are displayed equally in order of lowest APR. But in the future, the company may offer preferred placement for additional fees.

Summary
For the first time, U.S. consumers can easily shop and compare the total price for mortgages from competing lenders. And thanks to the Internet, they can complete an application in less time than it takes to drive to the nearest loan office.

Note:

1. Currently, only Mortgagebot mortgage-platform customers are allowed to participate in the network.

This is a very interesting bit of news today. Virgin Group PLC, the high-flying UK-based company run by Richard Branson, says it will be using Waltham, MA-based CircleLending to enter the U.S. financial services market. Virgin's financial services are marketed under the Virgin Money brand in the UK (see screenshot below) and several other markets.

If you take a broad view, CircleLending was the first pure peer-to-peer lender in the U.S., five years before Prosper got its start (see previous coverage here). However, CircleLending has historically limited its involvement to servicing loans made between family members, not brokering the deals or vetting the applicants like Prosper and Zopa.

However, from the sounds of it, that will be changing under the new majority ownership by Virgin USA. According to Asheesh Advani, CEO/Founder of CircleLending:

"(CircleLending will be the) launching pad to brand Virgin in the U.S. in financial services"

According to the American Banker article here, the new venture's first product, sold under the Virgin name, will be a direct mortgage that blends "friends and family" funds with capital from a financial institution and/or the secondary market. They also said they will have a credit card and are looking at student loans.

It will be interesting to see how they use peer-to-peer finance in its efforts. Anthony Marino, Virgin USA's SVP Corporate Development told American Banker:

"(the CircleLending platform) provides a broad opportunity to address consumer needs, and the Virgin brand allows us to bring a unique tone of voice to the market,"

And,

"We are … building a major, Virgin-branded financial services company in the U.S."

Analysis
These are not new concepts, but with the Virgin marketing muscle behind them and the integration of peer-to-peer tools, the newcomer could carve out a significant niche in the massive U.S. mortgage lending business. The new entity could also leverage the CircleLending platform to compete directly with Prosper and Zopa in the U.S. and  importing the resulting product into the UK to compete with Zopa there.

Technology adoption is often hard to understand. Sure it can move in a straight, relatively predictable lines; think Moore's Law. Other times, consumer behavior defies logic. For instance, 10 years ago could you have imagined that teenagers today would frequently communicate using a tiny 10-key pad; closer to the Morse code of 100 years ago than the Jetson's world of flying cars and automatic doors (note 1).

Then there are times when technology leaps forward faster than even the most optimistic would have predicted. Case in point: Even a year ago, who would have guessed that on most streets in the country, you can now press a button on your cellphone and receive a near- instantaneous text message listing the current values of the three houses closest to where you are standing. 

Using Zillow's API, uLocate created the ultimate mobile real-estate service for its WHERE suite <where.com>. Currently, it works on just six GPS-enabled phones running on the Sprint or Nextel network. And, you'll need to be in a neighborhood tracked by home-value superstore Zillow.

It does cost $2.99/mo (note 2), but signup is simple (see screenshot above) and even if only half the Realtors in the country subscribed, revenues would be $1.5 million per month. And how much would a nearby mortgage broker or Realtor pay to be listed in the message? Yeah, we wish we would have thought of it too.

But there's no indication that uLocate has an exclusive on this service. Check with Zillow and see if your financial institution could recreate this service in your area using the same API. It could be a great way to create new mortgage leads.

For more info see Zillow's blog entry here.

Notes:

1. Three days ago, I was in a conference where one of the speakers said his teenage daughter sent 2500 text messages last MONTH, more than 30 per DAY.  

2. The monthly fee includes other WHERE services, see its website for more details.

Mortgagebot LLC, the online mortgage spinoff from M&I, has introduced an online widget for its clients (see Fairwinds CU version inset). The widget allows users to keep current mortgage rates visible on their desktop.

Typically, it would appeal primarily to someone currently in the market for a mortgage or refi where an 1/8 difference in rate can add up to thousands over the life of the loan. 

So far, seven of Mortgagebot's 600 clients have posted the widget at Yahoo's widget center; however, many more offer the service through their websites.

The first widget posted on Yahoo was uploaded Aug. 28 for Northwest Savings Bank and has been downloaded 711 times. In total, the Mortgagebot widget has been downloaded 2,200 times.

• Northwest Savings Bank (national), 711 downloads since Aug. 28
• Fairwinds Credit Union (Florida), 215 downloads since Sept. 27
• Vista Federal Credit Union (California), 330 downloads since Sept. 27
• Gateway Community Bank (Iowa, Nebraska), 275 downloads since Oct. 2
• Northwest Bank (national), 351 downloads
  since Oct. 3 
• Macon Bank (North Carolina), 216 downloads
  since Oct. 12
• Riverside Bank of Florida, 127 downloads
  since Oct. 12

For more information on creating a desktop presence, read Online Banking Report #85, Grabbing Desktop Mindshare. Also see our previous coverage here.

When Bank of America launches a new product, you might as well try to ride on their coattails rather than fight it. One obscure loan-referral website is doing just that.

Bank of America's product-du-jour, at least in our Seattle market (UPDATE 10 Jan 2007: Confirmed as a market test in this article here), is a unique no-fee mortgage that comes with a built-in "refi" option. The refi feature allows users to lower their underlying mortgage annually if rates drop. It's a product that makes a ton of sense for today's savvy mortgage holders, who know when to hold 'em and also when to fold 'em into lower-rate loans.

The bank has been blitzing the market with branch, Web (see End Notes), and radio advertising for the product. Today's mid-day radio spot included a URL in the call to action, <bankofamerica.com/nofeemortgage>. Typing that URL directly into the browser leads to the correct Bank of America landing page (see screenshot in End Notes).

However, for a good portion of listeners that navigate with Google, typing "bank of america no fee mortgage" brought search results that did NOT include the bank as an advertiser although they were the second organic result listed (see screenshot below).

Google search results for "bank of america no fee mortgage"

Surprisingly, the top advertiser, YourQuoteOnline, was running an ad that was rather deceptive (see screenshot above). It fooled me into thinking it was a BofA ad.

A similar search for "Bank of America mortgage no fee" did bring up the bank's Google ad (see below), although it linked to a "$2,000 savings" landing page (see End Notes) instead of the no-fee promotional page. Evidently, Bank of America has not properly coded their search-word criteria to include the more obvious search term or to send searchers to the current no-fee campaign page. The bank is leaving money on the table by allowing some of the traffic generated by its advertising to be funneled off to other companies.

Google search results for "bank of america mortgage no fee"

End Notes (click continuation link for footnotes)

Banner advertising at About.com's banking blog <bank.about.com>

Landing page for direct navigation to <bankofamerica.com/nofeemortgage>

Landing page from bank's Google ad on "bank of america mortgage no fee"

Seattle-based Zillow (see NB Feb. 8) announced a $25 million second-round investment led by Boston's PAR Capital Management. The home-value and real estate-listing service, founded by Expedia's Rich Barton, received 2.1 million unique visitors in June according to comScore.

With a total of $57 million raised, the 118-person company can create interesting new products from its database of 67 million homes. The latest twist: residential real estate "heat maps" that show home values, measured in sales price per square feet, across 18 metro areas (click on the inset to see Seattle's heat map, with red being the higher prices).

Zillow also launched a "financing" section last month, complete with its own tab on the homepage (see screenshot below). It's clearly a first effort with a cluttered design. An unattractive LoanWeb banner dominates the page with Google ads running along the right side and LendingTree and Bankrate.com providing interactive tools along the bottom.

Financial institution opportunities
Financial institutions can use Zillow and its competitors (RedFin, HouseValues, HomeGain, PropertyShark, RealEstate.com, Trulia) in several ways:

1. Advertising medium: With millions of potential home buyers using the sites, it's an ideal place to market mortgage and other bank products, especially with a "new mover" package (see NB April 5).
2. Prospecting tool: Branch loan officers could use the service to map potential untapped home equity in their neighborhood. Although this information is already available in other prospecting databases, the ease of use and mapping capabilities of the Web-based services could help loan officers hone their pitch.
3. Consumer education: Although Zillow is well known among the early adopter crowd, it's not exactly a household name. Introducing your customers to Web-based home-value services would make an interesting addition to your consumer education area or monthly newsletter.

When  everyone is swimming upstream, sometimes the best strategy is to head down. In the soft drink world, 7-Up's "uncola" campaign is legendary. The J Walter Thompson campaign launched in 1967 ranked 61st on Advertising Age's Top-100 All-Time Advertising Campaigns (compiled in 1999). In that spirit, ING Direct Canada's "unmortgage" campaign is bound to grab attention <ingdirect.ca>, even without the fizzy water.

How often have you seen "the best mortgage is no mortgage" at a lending site? The direct banking pioneer doesn't even use the word mortgage on its homepage, instead posting an "unmortgage toolkit" along the bottom navigation (click on inset for a closeup). To further reinforce the unmarketing strategy, an unmortgage sweepstakes promises $20,000 to two customers to assist in paying down their mortgage balance (see screenshot below).

Analysis
Unfortunately, the bank does not make good on its homepage promise. Clicking on the Unmortgage Tool Kit, simply drops users into a relatively standard mortgage page with information on new mortgages, refis, and home equity (see screenshot below). Where's the "help me unmortgage my home" button, or the "five steps to eliminating your mortgage" worksheet, or even a "talk to one of our unmortgage officers today" graphic.

After a great tease, the company leaves users hanging. Hopefully, they'll remodel their mortgage page with ways for prospective customers to follow through on the unmortgage promise. Since ING trademarked it, you may not be able to use that clever name. But anyone can follow the powerful strategy of working to get your customers out of debt and back into the savings habit.

In the United States, as baby boomers head into retirement often loaded with mortgage debt, "mortgage retirement" is likely to become a major focus in the personal-finance press for decades. Now is a good time to make your mark as the unmortgage expert in your area. While it may not land you on Ad Age's Top-100 list, it could keep your mortgage officers busy for years to come.

--JB

If you're in need of inspiration for financial marketing ideas, check out the Interactive Financial Marketing Database from our sister publication, the Online Banking Report.

The new website for previously announced U.S. direct banking effort from Puerto Rico-based Popular Inc. <bancopopular.com> is just five weeks away from launch. According to its website <populardirect.com>, "A whole new Popular Mortgage Online coming May 1st 2006." The company is also using <pmexpress.com> to direct traffic to the new site.

The current website for Popular Mortgage is <popularmortgage.com>. There is no hint whether high-yield savings accounts will be offered at the outset.

--JB

April 6 update: An article in today's American Banker outlines Popular Inc.'s overall goals for its U.S. expansion, including an expected $3 billion in deposits through its upcoming direct banking initiative. The timetable for the $3 billion isn't spelled out, but it sounds like a 2008 year-end goal.

In many urban markets, new tools aimed at homebuyers are about to alter the purchasing paradigm. These tools, which make it much easier to scour home listings, determine market value, and make legally binding purchase offers, are slowly diminishing the role of the real estate agent, especially on the buy side (sellers still need access to the multiple listings). Already, 24 percent of recent homebuyers first learned of the home they eventually bought through their own Internet research (see Note 1 below).

What does this have to do with online finance? Plenty. With 77 percent of home buyers already using the Internet in their home search (see Note 1, below), the online real estate venues will begin to play a much larger role in the process. Financial institutions that get their name in front of homebuyers early in the process have a much higher likelihood of being chosen as the mortgage lender. And with buyers less likely to contact a real estate agent early in the process, traditional agent referrals will become less of a factor in the mortgage-purchase decision.

The Latest Homebuying Resources

Zillow <zillow.com>, the Seattle-based company launched Feb. 8 to much fanfare (so much that it crashed the site) including favorable articles in Walt Mossberg's Wednesday WSJ column, Seattle Times business section, The New York Times, and many others. Zillow, started by former Expedia founder and CEO, Rich Barton, allows users to research comparable housing market values, both current and historic. Similar services have been around for almost a decade, but none match Zillow's depth of information and ease of use (click on screenshot right for a closeup). Note: Zillow is using an advertising business model. Currently, it displays Google AdSense ads on the right, banner ads across the top, and other ads scattered throughout the site. Real estate brokers and lenders are expected to be major advertisers. ZipRealty, a buyer's agent that rebates 20 percent of the commission, is a major sponsor at launch. Other similar services: HouseValues.com, HomeSmartReports.com, and HomePriceCheck.com (from LendingTree).

-

Redfin <redfin.com> another Seattle-based startup, provides not only home-value data, but also overlays home-for-sale listings and recent sales on a satellite image of the neighborhood (click on inset for closeup; red boxes are homes currently for sale, blue-green indicates a recent sale). And with a business model that includes pocketing 1/3 of the home-sale commission, while rebating 2/3 to the buyer, it offers a potentially disruptive business model to the real estate industry which generated more than $60 billion in commissions in 2005 (reference: Seattle Times, Feb. 5, 2006). Although the site covers only the Seattle metro area at this time (which generated $1 billion in commissions in 2005), its primarily California-bred executive team is planning a San Francisco area launch later this year.

Action Items

1. Keep abreast of homebuying venues in your market areas. Consider advertising or sponsorship opportunities to drive new buyers to your financing options.
2. Improve the visibility and benefits of your mortgage preapproval program. Look at what Third Federal has done with its Mortgage Passport, a lifetime mortgage preapproval service (NetBanker Jan. 23, 2006).
3. Develop a robust real estate marketplace for your website. Use your impartiality as a drawing card, e.g., "Looking for a home? Check out yourbank.com's Real Estate center, where we show you how to find ALL the homes in the market, not just the ones your agent wants you to see."
4. For those not currently receiving referrals from real estate agents, consider adopting the Redfin discount real estate agent model, helping buyers earn large commission rebates. You could even take it one step further, allowing the rebate (which could be as high as 3 percent of the purchase price) to pay for all or part of the down payment at closing.
   
   Run this scenario by your legal department: The bank refers customers to a flat-fee real estate attorney who handles the purchase offer and subsequent negotiations for a pre-set fee; let's call it $500 (see Note 1). The remainder of the buying agent's commission is used as down payment for a mortgage from your bank. On a $400,000 home, that potentially makes more than $10,000 available for the down payment.

Big Caution: Anyone helping cut real estate agents out of their full commissions will be extremely unpopular, and will face backlash from the local real estate industry. This strategy (#4) works only for financial institutions with relatively few ties to the existing homebuying power structure.

-- JB

Continue reading "Zillow and RedFin Cater to Do-It-Yourself Homebuyers" »

The Wall Street Journal's Ruth Simon writes today about how lenders are using the rise in short-term mortgage rates to convince borrowers to swap their adjustable-rate mortgage (ARM) for a fixed-rate one. She told how CitiMortgage, Wells Fargo, and others are targeting borrowers through direct mail, statement inserts, and telemarketing campaigns.

To see if these tactics had spilled over to the online world, we tried a few Google searches to see who was advertising "ARM to fixed-rate conversions." The only highly targeted ad was by DiTech, <ditech.com> the online lending unit of GMAC.

Under our search, "trade ARM for fixed mortgage," their AdWords promotion used the headline, "Dump Your Adjustable & Get a Fixed Rate Loan from Ditech.com" (click on screenshot above for a closer look), exactly what we were looking for. Unfortunately, DiTech has not created a landing page that speaks to this niche. We were dumped on their busy homepage (click on screenshot below for a closer look) and left to our own devices to figure out how to accomplish this intricate task.

Analysis
It's simple to see what went wrong here:

   Great search engine marketing
+ horrible website execution
= wasted $$$$$

The old advertising cliche about the fastest way to kill a bad product is with great advertising is doubly true with search engine marketing. Great search engine marketing increases click-throughs, driving costs through the roof, while poor website execution pulls conversions down, making the whole effort appear terribly cost ineffective.

So before launching any clever search engine campaigns, make sure you are able to cash in on the traffic.

--JB

Ohio's Third Federal Savings & Loan <thirdfederal.com> Mortgage Passport program might be the best relationship program we've ever seen. The free program promises a lifetime of preapproved mortgages and/or refinances, subject to a few simple rules:

-- Owner-occupied housing within the bank's lending area (all of Ohio and parts of Kentucky and Florida)
-- Maximum LTV of 85 percent for loans less than $650,000; 60 percent for loans higher than $650,000
-- Have never declared bankruptcy or been foreclosed on

Features

• Mortgage is preapproved: Members are guaranteed a mortgage loan provided they meet down payment/equity requirements (15 percent for up to $650,000, 40 percent for higher) and have not filed for bankruptcy or been foreclosed on.
• Lifetime membership: The preapproval is good for the lifetime of the member provided the above criteria are met; future credit score and income does not matter.
• Reward programs: Members are automatically enrolled in Passport Rewards which promises prizes and "special gifts" throughout the year.
• No program application required: Membership in the Mortgage Passport is by invitation only (preapproved) based on credit history; users receive an ID in their preapproval package that is entered into the bank's website (application is still required for a new mortgage/refinance); mortgage site powered by privately held Mortgagebot LLC.
• No maximum debt-to-income ratio: Provided the above equity measures are met, the bank lets the home buyer determine the house payment they can afford.
• Downloadable, preapproval letter: Members can download and print a mortgage preapproval letter at any time to use when house shopping; no preplanning is required before hitting the open houses; and members can choose the loan amount to be cited in the letter.

Analysis
In the age of identity theft, layoffs, and mysterious entries on your credit report, it is reassuring to know that once you've joined Third Federal's Mortgage Passport program, you'll never have to worry about being approved for a mortgage again. This prevents the sad cases where consumers who've lost their jobs are stuck in their oversized house or mortgage because they can't qualify for new, lower-priced financing.

And talk about engendering loyalty. Would you ever move your banking business away from a company that gives you a preapproved mortgage for the rest of your life! That's better than free bill payment by just about every measure.

Assuming the underwriting is sound, the only downsides are:

1. Limitations of "by invitation only": While it creates exclusivity and ensures the highest credit quality, what about prime prospects just moving into Ohio or Florida that have not received the bank's preapproval offer? There should be some application process to receive the coveted "invitation."
2. Undermarketed on its website: Again, because of the by-invitation-only nature, the program's promotional material is low-key so as not to disappoint the majority of visitors not previously qualified for the program. The bank provides a homepage link (click on the inset for a closeup), but the tiny, almost unreadable copy says only, "Click here if you've received an invitation to participate in our passport program."

--JB

Speaking of combined accounts (see Higher One), why isn't anyone in the United States offering a combined mortgage/deposit account, a product that's been quite popular in the UK ever since Virgin pioneered the concept in 1997.

The OneAccount, now wholly owned by The Royal Bank of Scotland, has grown to 160,000 accounts with US$20 billion in loan commitments ($125,000 per account).

Analysis
While a combined mortgage/deposit account probably won't appeal initially to mainstream consumers, it's a potential PR and marketing gold mine. Using deposit totals to offset mortgage principal balance creates significant savings when compounded 30 years.

For example, a $1000 average "deposit" balance used instead to offset the mortgage balance, returns 5-to-1 in interest savings over the life of the loan (using 6% rate), e.g., a $5000 savings. The savings are more if interest rates increase.

Deposits used to offset the mortgage balance provide a rate-of-return equal to the mortgage rate. For example, your customers with 6% mortgages, earn 6% by using their deposit totals to offset the mortgage balance.

The Business Case
At first glance, the combined account seems to have a challenging business case. Every dollar used to offset the mortgage balance is one less dollar earning the spread between deposits and loans.

If you already have the majority of your customer's deposits AND loans, forget about this offering. Enjoy your success!

But if you are looking for ways to increase your home-secured lending business, this product has real potential to bring in new outstandings. 

If you'd like to learn more about the future of online account aggregation, check out the Online Banking & Bill Pay Forecast: Current, future and historical usage: 1994 to 2016 from our sister publication, The Online Banking Report.

Capital One Financial's purchase of online home-equity lender eSmartLoan for $155 million on December 14 (press release), should increase the level of innovation in this market in the coming years.

eSmartLoan originated about 12,000 home equity loans in 2004, totaling more than $1 billion, just two-tenths of 1% of the national total of $431 billion according to SMR Research Corp. The 2004 total was up more than $100 billion (35%) from the $320 billion in home-equity loans were originated. 

Under its previous owner, National Bank of Kansas City, the online lender was willing to lend up to 125% of the home equity (LTV).

If you'd like to learn more about the how to optimize online lending, check out the latest report on the subject from our sister publication, the Online Banking Report.

Link: WSJ.com - Online Referrals For Home Sales Gain a Toehold.

Here's a way to gain incremental mortgage sales, new banking customers, and potentially a bit of direct fee income from your online services.

Develop an online real estate agent referral program.

Visitors would be able to query your website to find qualified agents specializing in their target neighborhoods. You could do it as a pure marketing play, with no incentives or referral fees; or you could provide eye-popping incentives, such as $2500+ gift cards from Home Depot or American Express offered by LendingTree at their realestate.com site.

In the LendingTree program, the value of the gift card depends on the size of the home purchased and/or sold (you receive an incentive for both buying and selling) as follows:

Incentive  Combined Value (bought & sold)
$250         $100,000
$500         $150,000
$1000       $250,000
$1500       $350,000
$2000       $450,000
$2500       $550,000
$5000       $1.1 million
$10,000    $2.1 million

The incentives are funded by the agent receiving the referral, who rebates a third of their sales commission to LendingTree. The consumer ends up with approximately $500 for every $100,000 in home value over $50,000.

LendingTree also tacks on an extra $100 if the buyer gets the mortgage from a LendingTree lender.

Currently, 7% of home buyers say they found their real estate agent through the Internet. (Source: National Association of Realtors study of transactions in 2003 and 2004, as cited by The Wall Street Journal, Dec. 9, 2004)

Caveats
This strategy is not for the faint of heart. While consumers will love it, driving additional business to your mortgage products, most real estate agents will hate it. So you have to weigh carefully whether it's worth the potential heat. If you rely on real estate agents for mortgage leads, you might want to consider the non-incentive version, where you simply forward home sales leads to agents based on zip code.

-- JB

Amidst the current refi frenzy, it’s not surprising that 2 of the 5 most-searched-on banking phrases are “mortgage(s)” and “mortgage calculator(s).” And the competition to advertise next to those search results is equally frenzied. For example, on Overture you’d have to pay more than $3 per click to be listed among the top four advertisers on any of the major mortgage-related keyword phrases.

Costs appear to be similar at Google. Its estimating tool recently predicted a per-click cost of $2.70 to be in the top-3 slots. Our test ad, which ran for just a few minutes, racked up 665 impressions and 5 clicks at an average price of $3.70 per click. However, we were attempting to be number one with a maximum bid amount of $10. While we did hit number one a few times, it appears our ad was usually number two, since our average bid position was 1.9. If we’d continued advertising on “mortgage” Google estimated we’d get 1,100 clicks per day for a total cost of about $3,000/day, or $90,000/month
(see Table 1).

If your advertising budget falls somewhat below
$1 million per year, you can still advertise for mortgage shoppers, you just have to choose more targeted search terms that bigger players don’t bother with. As you can see in Table 14, a lower-volume search phrases can be used to target mortgage shoppers at a lower cost-per-click.

For example, you can target buyers within certain geographic boundaries such as city or state. In our tests “mortgage + yourcity” generally had a significantly lower CPC (Table 8, right). However, on the state level (“mortgage + yourstate”), the costs varied considerably by state. On average, it was more expensive to add a state to the search phrase. The top four bidders on plain “mortgages” paid an average of $3.12 per click on May 29. On average the top four bidders on “mortgages + state” paid $3.60 per click, a 15% premium.

However, there was a wide variety in bids. Bid amounts primarily depend on the value of the mortgages sought by Web users of a given state combined with the propensity for those shoppers to get a mortgage from a company they visited.
For example, in California where mortgages values are high and many Internet users are experienced and willing to apply online, “mortgage California” sells for more than $9.00 per click, three times the rate of plain “mortgage.” However, in states where mortgage amounts are far lower, prices are considerably below average. For example, “mortgage South Dakota” is only $1.59 per click, about half the unmodified rate.

A mortgage company operating in the Pacific Northwest would expect to only pay about $400/month to maintain the top position on “mortgage + Oregon or Washington or Seattle or Portland” (see Table 8, below). Of course, the volume would be just a fraction of the “mortgage” volume, less than 150 prospects per month, at a cost of slightly under $3 each. But you’d only have to book a single mortgage for a reasonable payback on the expense.

Table 1

Google AdWords Cost Estimates for
Nationwide Mortgage Advertising

for AdWords pay-per-click

Source: Google, 6/2/03; assumes maximum bid amount of $10 per click

Table 2

Google AdWords Cost Estimates for
Pacific Northwest Mortgage Advertising

for AdWords pay-per-click

Source: Google, 6/2/03; Assumes maximum bid amount of $10 per click; excludes the word “mutual” to avoid searches on “Washington Mutual Mortgage.”

Table 3

Household Income of Mortgage Searchers

mortgage searchers vs. total Internet, March 2003

Source: comScore Media Metrix qSearch, 5/03                          mtg. = mortgage

Table 4

Mortgage Sites Visited by Mortgage Searchers

March 2003

Source: comScore Media Metrix qSearch, 5/03   mtg = mortgage

Table 5

Mortgage Searches by Location

March 2003

Source: comScore Media Metrix qSearch, 5/03   mtg = mortgage

Table 6

Mortgage Searches by Search Engine

estimated searches in March 2003

Source: comScore, 5/06/03, estimates for the March 2003

(1) Includes only searches done at Overture.com, Overture also displays paid listings at MSN, Yahoo, AOL, and other search engines.

(2) Percent of searches on any mortgage-related term

(3) Percent of all searches, mortgage and non-mortgage.

In March, MortgageExpo was the second-most popular mortgage related site among mortgage searchers, attracting 250,000 unique mortgage shoppers.

Table 7

Overture Mortgage Bids by State

ranked by average bid across the highest four bids

&

Source: Overture, 5/29/03;  *Each state averages 1,270 monthly searches, for a total of 64,000 searches for all 50 states, just 10% of the “mortgage” volume

Table 8

Mortgage Keyword Selection

Source: Overture, 5/28/03         (1) Included with the volume in “mortgage”

First quarter numbers provide best evidence yet that the online consumer
loan auction marketplace is viable, even with a more moderate advertising budget.

The front door of LendingTree’s Mortgage area. Note the emphasis on simplicity, “1 easy form…up to 4 real offers.”

But surprisingly, the dominant, “We’ll pay you $250!” message is not well explained. To find out what the catch is, users must return to the home page and follow the obscure, “Want extra cash” link. (The $250 rebate is for accepting a credit card with their app,.)

Naysayers point to last year’s unsustainable $50 million dollar TV-advertising campaign and question the economics of the business. Granted, that wasn’t a rational marketing budget, but it was what investors demanded, at least early in 2000.

In LendingTree’s case, unlike many consumer dot-coms, it appears the brand-building money wasn’t entirely wasted.

In Q1 2001, thanks in great measure to the refi boom, with less than $7.2 million in advertising, the company racked up 750,000 loan applications, of which about 350,000 were good enough to sell as leads to at least one, and oftentimes as many as four, of its stable of 121 lenders. In total, about 22,000 non-credit card loans closed in the first quarter.

That’s an advertising cost of just under $10 per application, $21 per good (transmitted) application, and $330 per closed non-credit card loan. If you also throw in the 40,000 plus credit cards cross-sold to applicants, then the advertising cost drops to $116 per closed loan/card.

LendingTree makes money whether the loan closes or not. Lenders pay $6 to $8 per qualified application and $100 to $400 for each closed loan (not including credit cards which are significantly less, see Table 6). LendingTree’s total revenue per transmitted application was $31 in Q1 ’01 vs. $21 in variable marketing expense (e.g., advertising). Therefore each transmitted application contributed $10 dollars to offset fixed expenses and eventually to make a profit. The company expects an operating profit during Q4. This is a good business.

Along with NextCard, PayPal, and several stockbrokers, LendingTree appears to be one of a handful of “new” successful financial service business models to emerge from the Internet land rush. If the company hits its new profitability projection of Q4 2001, its on the way to becoming a household name in the first decade of the new millennium.

The big jump in volume in Q1 was on the mortgage side as consumers rushed to take advantage of interest rate declines. Much of the mortgage volume surge may be short lived, but LendingTree is less dependent on mortgage interest rates than most online lenders.

Why? Its thriving home equity business generated 200,000 applications and 32,000 closed loans in 2000 (see Table 1, below). Despite the popularity of cash-out mortgage refinances this year, the home equity product is on track to beat last year’s numbers. One reason, the size of LendingTree’s HEQ network, which averaged about 50 lenders for most of 2000, grew by a third in first quarter, to 71 lenders. Because a home equity application is four times as likely to close as a mortgage application, the company makes almost twice as much revenue per home equity loan.

Table 1

LendingTree Home Equity Lending Volume

$ millions

Source: LendingTree, 5/01

LendingTree made a strategic move into the real estate brokerage market through its Aug. 2000 acquisition of HomeSpace. Users can earn rebates of up to $1,000 on each home bought or sold.¹

Other Developments

LendingTree became a player in the online real estate business with its acquisition of HomeSpace on Aug. 2, 2000. LendingTree paid $6.2 million in cash plus 639,000 shares, and assumed certain liabilities. The total value at the time was more than $11 million. Home buyers who use a LendingTree network real estate agent earn a rebate of as much as $2,000.¹ The total network includes 7,000 Realtors in 650 real estate companies with more than 2,400 offices in all 50 states.² The network includes agents from Coldwell Banker, Century 21, Prudential, ERA, Remax, GMAC (formerly Better Homes and Gardens), and Realty Executives.

¹$1,000 each for the sale and purchase of a home valued at more than $150,000; $500 for each transaction for homes less than $150,000; users must snail-mail documentation to LendingTree to claim the rebate.

²The Web site lists 41 states with agents in the network; however, 3 states (WV, AK, and OK) do not allow rebates.

LendingTree has not been a big search engine advertiser. In our most recent search engine research, we found only one banner ad running on “loan” keyword searches on Yahoo. The company also advertises on BankRate.

Table 2

LendingTree Web Traffic

thousands of unique users¹ by month

Source: NetScore, 5/01  www.netscoreonline.com  PC Data Online, 4/01   ina = info not available            international = users accessing from outside of the U.S.;

*min:sec; average time spent at the site by each unique user in April

LendingTree continues to give borrowers a $100 to $250 rebate for accepting a credit card with their application. This successful promotion, originally with FirstUSA, has been running for two years, resulting in approximately 150,000 cards being issued.

A-rated credits are set up with a Bank of America US Airways card that carries a $90 annual fee. B credits may receive a no-annual-fee Aspire card from Columbus Bank and Trust. Problem credits are eligible for a First Premier card, which costs $208 the first year for a credit limit of $250 to $1,000 and $84 annually thereafter.

Lending Tree posts the results of customer feedback on each lender. Lenders can opt out of having their scores posted.

Only 10 of the 137 lenders listed achieved a perfect 5-star ranking in the overall experience: Bank of America, Champion Mortgage, Citizens Bank, Dime Savings, eSmartLoan, Genisys Financial, LendNetwork.com, Soluna First, Synergy Federal Savings Bank, and Transouth. Dime, Citizens and LendNetwork tied for the best scores across all categories with 5-star rankings in 4 of 5 categories, and 4.5 stars in the final category.

Table 3

LendingTree’s Share of Total Loan Market

full-year 2000 figures

Source: LendingTree annual report, 5/01; market sizes sourced from Forrester

Table 4

LendingTree Variable Marketing Expense

Source: LendingTree, 5/01

Table 5

LendingTree Metrics

Source: LendingTree, 2000 annual report

1.)    Authentic loan applications that meet underwriting criteria for at least one lender; each loan request may be shipped to multiple lenders, but it only counts as one loan request in this total

2.)    Includes cross-sold credit cards, 65% of total closed loans in 2000, see Table 7, for results with credit cards removed

3.)    Does not include revenue from licensing the LendingTree platform (Lend-X)

4.)    Fixed and variable marketing costs

Table 6

LendingTree Pricing

Source: LendingTree price list and OBR assumptions                *Assumes 1 of every 5 transmittal closes, and each transmittal goes to 3 lenders, from the lender’s standpoint, resulting in 1 closed loan per 15 leads      **Actual network revenue divided by number of closed loans

Table 7

LendingTree Loan Originations by Type

Source: Online Banking Report, 5/01; from LendingTree earnings releases                ina = information not available

1)     Number of applications submitted regardless of credit quality

2)     Number of applications transmitted to one or more lending partners; prescreened to match lender’s criteria, but not guaranteed to be approved

3)     Number of applications that result in a closed loan (i.e. loan origination) at a LendingTree lender

4)     Static pool close rate incorporates the average time lag between the submission of a loan application and closure; 120 days for mortgages, 90 days for home equity, 60 days for auto/personal, and 30 days for credit cards

5)     Network revenues on the income statement is higher because we have excluded set-up fees, adaptive marketing fees, and realty service revenues

Gomez Advisors, the financial services consultancy and widely cited consumer rating service, tracks more than 300 online mortgage provider, and ranks the top 20 meeting the following minimum criteria: provide pricing updated daily, offer online purchase mortgage application, offer online processing through closing, provide 24x7 dynamic loan-status tracking, and geographic coverage of at least 50% of the U.S. population.

The top 5 have remained relatively constant since Fall 2000: IndyMac has been first during all three quarters; LoansDirect has been 2nd or 3rd; MortgageBot has moved from 5th to 3rd; Countrywide moved into the top 5, dislodging Infoloan.com which fell to 7; and E-Loan, which has fluctuated from number 2 in the fall to 10 in the Winter, and is now back up to number 5. All top 5 lenders, except E-Loan, have seen their total score improve since Fall 2000. E-Loan’s score has dropped nearly 25%, from 6.5 to 5.0.

Table 1

Gomez Mortgage Scorecard

ranked by Overall Score

Source: Gomez Advisors, 5/01  www.gomez.com  (781) 768-2100                 n/r = not ranked

¹MSDW = Morgan Stanley Dean Witter

²Mortgage.com went out of business in late 2000; its domain name and certain assets were purchased by ABN AMRO, which reopened a mortgage lending operation under the mortgage.com brand in May 2001

Table 2

Top U.S. Online Mortgage Originators*

retail originations in $ millions

Source: Inside Mortgage Technology, May 21, 2001, www.imfpubs.com , (301) 951-1240 (LendingTree was added to the list by OBR based on company reports)

*Excludes wholesale (B2B) mortgage originations

1)  Includes originations via telephone channel in addition to online

2)  Since LendingTree doesn’t originate loans itself, but passes them on to its 121 lenders, some of that volume may be reported in the totals of the other lenders, although the other lenders may be including LendingTree volume under its wholesale originations, which are not included in this chart; Lending Tree originations do not include home equity loan volume of $435 million in Q1 2001, $389 million in Q4 2000, and $1.41 billion in FY 2000; total mortgage plus home equity originations would be $1.5 billion, $1.2 billion, and $3.9 billion respectively

3)  Estimated by Inside Mortgage Technology; On May 31, E*Trade said it had originated more than $1 billion in the first 3 months of its ownership of LoansDirect with March at $308 and April at $385; subtracting from $1 billion, February must have been at least $307; another $583 million is locked in the pipeline

4)  Estimated by Inside Mortgage Technology

Table 3

Consumer Opinions of Mortgage Lenders Logged at Epinions.com

Source: Epionons, 6/5/01         *Ratings are on a 1- to 5-star scale, with 5 the highest; only these three lenders had more than a couple reviews

Several caveats with this data: a.) Most of the ratings are from 2000, so they may not be indicative of current user experiences. b.) It’s the nature of the business that there will be a significant number of declined loans (often many more declines than acceptances), so there will always be a significant amount of sour grapes at any online forum; we are not surprised that E-Loan and LendingTree have 40% approval ratings; but in comparison, Countrywide’s 82% approval is extraordinary.

Product Priorities

Definitions

Source: Online Banking Report, 6/01; definitions for U.S. market

We consider which products are best for online delivery.

The best loan from the lender’s perspective is one that is large, secured, carries a variable rate, is priced at a premium relative to risk, is applied for on the spur of the moment (consequently there’s not a lot of rate shopping), and, most importantly, is paid off on time (perhaps with a late fee or two along the way). Depending on the lender and its balance sheet, sometimes a portfolio product that stays on the books is preferred, other times a loan that is easily sold to fixed income investors is preferred.

In order of importance, here are the five most lucrative online lending opportunities (see Table 1):

1.       Home equity line of credit (second lien)

2.       Mortgage refinance (first lien)

3.       Home equity loan (second lien)

4.       Home equity loan/line hybrids (2nd or 3rd liens)

5.       Overdraft credit line (for checking customers)

From the user’s standpoint, most prefer a loan with a low fixed rate, no fees, a large line size, is secured by their home (if it saves taxes), requires little paperwork, and can easily be renewed.  When interest rates dip, mortgage refinance is a hot area of consumer demand; when rates are higher than historical averages, home equity loans are more desirable. LendingTree’s quarterly volume demonstrates this demand pattern. In Q1 2001, with mortgage rates at their lowest in almost 2 years, LendingTree received 5 mortgage apps for every home equity application. A year earlier, the ratio was 2 mortgage applications per home equity application .

Sizing the Web-based lending market is difficult:

•  The public pure Web-based lenders provide useful sales data, especially E-Loan, Mortgage.com, Finet (Table 4 to 6) and Lending Tree (Table 7 - 9); but they have relatively low share compared to traditional lenders who originate the majority of online loans but don’t usually report Internet volume separately.
•  Many loan applications are multi-channel; applicants may have surfed the Web for rates, then applied in person or by phone.
   

At year-end 1998, the total outstanding debt by U.S. households amounted to approximately $5.4 trillion (source: U.S. Federal Reserve). There were more than 21,000 financial institutions providing the credit (source: U.S. Census Bureau). Forrester Research projected that $1.9 trillion in new loans were originated during 1999, with $25.7 billion (1.3%) originated online. It expects the online share to grow to $168 billion (9.5% of total) by 2003 (Table 2), for a compounded annual growth rate of 60%.

Table 1

number in thousands, dollars in billions

OL %= percent of the dollar volume originated online            

¹Total originated on- and off-line

Table 2

billion $

Source: companies

Table 3

billions of dollars

Source: Piper Jaffray, 4/00

Table 4

billion $

Source: company reports and Piper Jaffray, 4/00

¹B2C share of total company volume

Table 5

Online Average Loan Size¹, 1999

Source: Piper Jaffray

¹Includes all types of consumer loans originated by the companies

²Average loan size fell due to acquisition of BofA’s Internet auto loan unit

Table 6

Online Acquisition Cost for Mortgages, Q1-Q3 1999

Source: Piper Jaffray

¹Includes home equity and sub-prime loans referred to other lenders

Lending Tree

Lending Tree first revealed its operating metrics in registration statements prior to going public Feb. 15. The company has continued to provide enough operating details to make it a good source for online lending trends.

In 1999 the company transmitted 186,000 loan applications (aka “qualification forms”) to its network of 104 lenders (Table 47). The total dollar volume transmitted was $16.2 billion. The average loan amount applied for was $88,000. More than 27,000 loans were closed amounting to $941 million in loans and lines. These results sound a little better than they really are because a substantial number of the loans (60% in Q1 2000) were credit cards cross-sold to applicants for other products (see Table 45 for a breakout in Q1 2000). Applicants earned rebates as high as $500 for taking the credit But even backing out credit cards, in Q1 2000, Lending Tree closed 7,500 loans for an annualized rate of 30,000 loans worth nearly $2 billion, a healthy amount of activity in a market sector barely two years old.

Lending Tree’s current tag line, “When banks compete you win,” strikes a chord with consumers.

Table 7

dollars in millions

Source: company, 5/00

¹Does not include 14,569 cards, $73 million in credit lines, and $232,000 in revenue cross-sold to other loan applicants

Table 8

Top Lending Tree Lenders* by Closed Loan $

Source: company, total lenders as of 3/31/00; top lenders for the month of Oct. 1999, based on loans closed

Table 9

¹Includes a large number of credit cards cross-sold to other loan applicants which earns the applicant a substantial rebate at closing; in Q1 2000 there were cross sales of 14,569 cards, $73 million in credit lines, and $232,000 in revenue (see Table 7); ²Excludes revenues from licensing its platform technology; ³ Does not include the cost of the sales staff

Table 10

unique monthly visitors (thousands)

Source:  PC Data Online www.pcdataonline.com ; Gomez Advisors Summer 2000 Mortgage Scorecard, rank of 26 total www.gomez.com ; 5/00          

 n.r.=not rated

www.mortgageauction.com

Is the eBay crowd ready to book mortgages through an online auction? It’s not as far fetched as it sounds.

The Company: A new national mortgage marketplace debuted Nov. 16 with a radio campaign in the Atlanta area. Mortgage Auction.com (Atlanta, GA), is a venture-funded, 30-employee (20 FTE) division of Real Estate Industries, Inc. It’s the first true mortgage auction site. Lenders bid against each other in a Web-based process hidden from view of the prospective borrower. In comparison, GetSmart and Lending Tree unleash multiple lenders on each applicant, and the applicant must determine who’s offering the best total package. The company already has already attracted 30 lenders nationwide with a target of 50 by year-end.

The Service: Under the MortgageAuction.com system, only the winning bidder is allowed to contact the applicant. The winner is the one with the lowest “modified APR” (which includes all possible fees). Lenders pay nothing to bid, and only $39.95 if they win, whether or not the loan closes. Borrowers use the system free of charge and are not obligated to follow through with a loan. Already some applications are being bid on by as many as a dozen lenders.

How it Works:

1. borrower submits full application online

3. company sends application packages including credit bureau report to lenders with borrower identity and social security number masked

4. lender has 24 hours to bid on a deal

5. borrower is notified of low bidder

6. the loan moves to close

The site suffers from several common problems associated with marginally capitalized Web start-ups: mediocre design, lack of credibility, no brand, lack of company information, lack of customer focus, etc. For example, if you were a potential user, you would want to know something about the companies bidding on your mortgage. MortgageAuction.com contains zero info on participating lenders. Only by reading their press release can you find mention of a single lender which is hardly a household name, InterLoan.com, a division of Finet Holdings’s (Walnut Creek, CA). Ironically, Finet operates a much better-looking loan marketplace, iQaulify.com, which has expanded to 16 lenders from four in May (OBR 5/98 ).

One area where its Web site shines is the Mock Auction where users can take a trial run on the process. But overall, the site is in serious need of a “graphics upgrade” if it wants to be taken seriously. It’s worse than CompuBank (OBR 10/98 ). And they must work on building more credibility with privacy statements, explanations of the process, guarantees, list of participating lenders, etc.

But we do like the concept, for the user anyway. It’s what a mortgage broker is supposed to do. Take an application and shop it to multiple lenders for the best deal. But with the traditional broker model, applicants have no easy way of knowing if the deal is actually best for their bottom line or the broker’s. By offering a competitive, unbiased auction marketplace, the user is likely to get a fair price.

The benefits for lenders are less apparent. Long-term, if you aren’t the low-cost provider, you won’t have much of a chance. But it will take a few years for the market to become efficient, and there will probably always be pockets of opportunity for niche players (e.g., rental properties in flood plains). In any event, early movers can use the auction market to temporarily pick-up market share and/or lower acquisition costs.

Since the company just launched three weeks ago, after a year in development, we’ll give them the benefit of the doubt that the site will be upgraded. Founder, Bill Koleszar, a banking veteran with stints in alternative delivery at Sun Trust and NationsBank, has understandably been concentrating on the technology, auction process, and lining up lenders.

Contact: William L. Koleszar is President of Mortgage Auction, (404) 943-1878, x 138.

Telebank

www.telebank.com

Telebank has partnered with E-Loan to build a co-branded mortgage loan site.

Wells Fargo

www.wellsfargo.com

Wells Fargo (San Francisco, CA; $101 billion; 10 million ATM cards) became the first bank to offer real time second mortgage/home equity application approval. The new service is featured on its home page and other areas such as the following starburst on the Request for Info page.

Promotional icon located in the Request for Info area.

Great program, crummy Web page. Navigation bars are nice, but this goes overboard. When I saw this screen, I wanted to move on as quickly as possible.

Wells should be commended on pioneering yet another industry-first feature on the Web. Real-time approval is a great marketing tool and sure to bring incremental business. But the treatment of the innovative feature on its Web, while thorough, is uninspiring if not downright confusing with five navigation bars competing for attention (screenshot above). Compare that to the elegant design at NextCard (OBR 5/98) or The Lending Tree Contact: Dudley Nigg is EVP, (415) 477-1000.

How many of these calculations do you offer on your Web site? If your answer is five or less you’re not paying enough attention to some of your best prospects, those in the market for a new or refinanced mortgage. What are you waiting for? SmartCalc www.smartcalc.com will license this whole set of mortgage-related calculators for $7,500 plus $750/yr. You won’t need but a handful of incremental loans to earn back that investment. See page 11 for more information.

•  How much can I borrow?
•  How much will my payments be?
•  How much will adjustable rate payments be?
•  Which is better: fixed or adjustable?
•  Should I pay points to lower the rate?
•  Which is better: 15 or 30 year term?
•  How much should I put down?
•  How much can I save in taxes?
•  What will my closing costs be?
•  Am I better off renting?
•  Am I better off refinancing?
•  What will my refinancing costs be?
•  How can I reduce mortgage insurance costs?
•  Which lender has the better loan?
•  Which loan is better?
•  How advantageous are extra payments?
• What house can I afford?
  
   

Intuit

www.quickenmortgage.com

Intuit gets right down to business with a three-step process and a $225 discount for online applications.

Intuit’s (Mountain View, CA) QuickenMortgage site has attracted more than 1.2 million visitors and 13,000 prequalification forms since its Oct. 1997 launch (Source: company 3/97). We wonder how many were distracted by the advertising across the top of the page. You can’t have it both ways. If you are trying to engage prospects and get them to apply online, you don’t want them clicking on an ad for Quicken 98.

Mortgages may be the first traditional banking product to lose market share to Web-based competitors. Why? It’s a significant consumer purchase, estimated to consume more than 80% of a household’s disposable income in the year of purchase. Second, with thousands of unregulated and highly competitive mortgage brokers scrambling to grab another tenth of a point of market share, innovation is a certainty.

The pioneers are making their moves!

As we reported last month, the market for online real estate and mortgage information is rapidly gaining critical mass. We estimated that already 10% to 15% of mortgage applicants are at least influenced by information gathered online . But with less than one in ten of those following through with an online application, you could reasonably conclude that user demand is low.

We don’t think that’s so. Web users may not be knocking down your door trying to submit an online application. But why? Is it because they like you so much they crave a one-on-one experience with your loan officer? Perhaps. More likely, they are borrowing elsewhere, either from a competitor feeding off the flow of leads from GetSmart and others, or simply responding to whatever direct mail solicitation arrived the day they needed some cash.

There’s another reason why U.S. online mortgage loans funded is a paltry 20,000 to 30,000 per month (OBR estimate plus 100%, minus 50%). Lenders have done a poor job reassuring users that online applications will be handled in a safe, secure, and timely fashion . Many lenders are driving users to more expensive channels, or into the hands of the competition with lackadaisical Webs and uninspired marketing.

However, there are exceptions:

•  Although not a mortgage lender yet, Nextcard from Interactive Access Financial Corp. has the best sales-oriented financial Web site we’ve seen.
•  E-Loan, the centerpiece of Yahoo’s new Loan Center, has made mortgage shopping interactive, enjoyable, and understandable.
•  GetSmart, a wildly successful lead-generation site which recently announced a $50 million online marketing commitment.
•  Countrywide, a leader in direct Web-based mortgage lending, is building a full suite of online customer service tools including account access, refi reminders, and personalized email alerts .

Intuit’s QuickenMortgage $20k GiveAway is a clever way to develop a database of mortgage leads. The sweeps is easy to understand, easy to enter, and gathers just enough info to qualify the leads without being overly nosey. The $20,000 grand prize can be earmarked for home purchase, second home purchase, home improvement, or mortgage principal repayment. Alternatively, users can take a $5,000 cashiers check. Intuit is also giving away a copy of Quicken Deluxe during each of the 34 days the contest runs.

The entry process is broken into three parts (see screenshots right). The first step is a single checkbox and blank to enter your email address. This draws users into the form before they have a chance to think about going elsewhere. The second step calls for name, zip code, and home ownership status.

The cleverest part of the entry form is the close. Instead of simply thanking entrants and wishing them a nice day, Intuit has them select a mortgage-related activity to close out the entry process. Users select from one of these four exit ramps at the end of step #2:

•  See how much house I can afford.
•  See if I should refinance my current mortgage.
•  Comparison shop for the best refinance deal.
•  Get advice on starting out to buy a home.

During this final step, Intuit hopes to get users involved in its site, determining if it’s time to refinance, purchase a home and so on. If the company was sneaky, or clever, depending on your viewpoint, they could append the information entered into the calculators with your profile entered earlier in the contest entry form. This would create a powerful database of mortgage prospects complete with name, email address, homeownership status, a proxy of disposable income (intended use of the $20k), current mortgage size, current mortgage rate, and desired mortgage size, term, and rate. What more could a loan marketer want, short of a completed application?

As long as the Web site fully discloses the data being collected, we see no problem with this approach (although consumer groups may see it very differently). We checked Intuit’s Privacy Statement www.quicken.com/support/privacy but it wasn’t clear on the issue of collecting user inputs to calculators. The company did disclose they were actively gathering user info through registrations and cookies throughout the Intuit site and Excite’s Business and Investing Channel. Intuit has even turned its privacy policy into a profit center running banner ads on top and bottom for credit report monitoring and brokerages.

Step 1: Just two questions to ease entrants into the survey with a low threshold of pain: (1) what you would do with the $20k, and (2) your email address quicken.imgis.com/qm/quicken1.html.

Step 2: Just a few more details: name, zip and birthday, then the killer close, four choices of what to do next.

Step 3. Intuit hopes you’ll spend a little time
with its refi calculator before moving on.