Bargains still plentiful in online-lending land
By Michael D. Larson • Bankrate.com

If you think the avalanche of easy money is over in dot-com lending land, you're only half right.

Sure, the companies who originate mortgages online aren't making millions in Wall Street initial public offerings anymore. But consumers willing to give them a second look do stand to gain. Lenders are offering everything from free appraisals to free cash in an attempt to draw borrowers to their virtual doors. That means savvy shoppers have the opportunity to click away from the closing table a few hundred dollars richer.

"If you shop and negotiate, you'll get a great rate, and I think the best place to shop is online," says Sönny Spearman, vice president of marketing for Quicken Loans. "It's easier for us to offer a promotion online and it's a great place for consumers to get a loan."

Most online lenders weren't even around a few years ago, but all of them tried to make up for lost time during the Internet revolution of 1998 and 1999. Many used incentives to draw traffic away from traditional mortgage lenders and brokers, and their unique approach helped draw media and investor attention. With the recent Internet stock sell-off, much of that attention has turned elsewhere. But everyday borrowers will find that not much has changed for them -- online lenders are still pulling out all the stops to keep business strong.

Great deals still a click away
LendingTree Inc., for instance, takes borrower applications for mortgages, credit cards, auto loans and other products. The Charlotte, N.C.-based company then submits those applications to its lender-partners and receives up to four loan offers back. They are sent along to the consumer, who can accept one and close with the selected lender directly.

Right now, LendingTree is trying to get people to shoot for more than one product at a time. So it's offering $250 to mortgage shoppers and $150 to home equity loan shoppers who are willing to get credit cards concurrently. The person must apply and qualify for both the mortgage and the credit card, then submit some paperwork to LendingTree. After that, the consumer gets either a credit on the card for the bonus amount or a rebate check.

"Our promotions are to make our customers happy and like us, and to make customers notice us," says Rob Racine, the company's director of product development. In this case, "the customer can qualify for what's a pretty generous cash bonus."

Quicken Loans, which is a division of the Quicken software-making company, Intuit Inc., has opted for rebates as well. The company is giving $225 to borrowers who get first mortgages at its Web site anytime between now and the end of August. Customers get the money in the form of a check about two months after closing.

"It gets the customer to stop," Spearman says. "If all of my competitors are offering cash back and I'm not, I get potentially marked off the list."

E-Loan Inc., meanwhile, doesn't even make consumers wait for their money. It's giving out free appraisals at closing.

The Dublin, Calif.-based lender collects the $300 or so that an appraisal normally costs up front. This is a fairly common practice among lenders, who don't want borrowers to apply for free, pay to process those borrowers' applications and then watch those customers hop to other companies for their loans. But at closing, the borrower can put that money toward anything, including other closing costs or a rate buy-down. E-Loan eats the cost of the appraisal.

"It's certainly a method to try and get customers to come in and use our services," says E-Loan senior vice president Cameron King. "Rates have been moving up for quite some time now and everybody is very, very competitive coming out of the refinance boom we had.

"People are aggressive at finding borrowers and you know certainly E-Loan is no different," he adds. "But we feel comfortable we can do it a lot easier because we have our pricing model and overall model of not having to rely on the cost of a brick-and-mortar infrastructure. We can pass these kinds of savings on to consumers."

Powerful promises to borrowers
Some newer entrants, such as Claritybank.com, are pulling out all the stops. The company has only been around under that name since January, when a group of investors purchased an Uvalde, Texas-based bank and gave it a new identity. It now promises to pay mortgage borrowers cash if it charges more on a given day than a competitor, if it fails to give a loan decision within three hours, or if it doesn't manage to close on the day specified.

The pricing offer is somewhat difficult to collect on because the customer has to get a good faith estimate from another lender that shows the other lender's interest rate and closing costs are better. Then, Claritybank.com has to verify the numbers. After that, it can offer to beat the costs by $100. Or the company will pay up to $500, but only after the customer closes with the other lender and sends the closing documents to Claritybank.com.

The other provisions aren't so onerous, however. For the three-hour guarantee, the borrower need only apply during extended business hours and be available in the hours following that application. If the bank can't respond before the time is up, the customer gets $250. The closing promise is even more straightforward. If the bank can't close a conventional purchase mortgage on the date agreed, the borrower gets one-eighth of one percentage point off the interest rate for the life of the loan.

"The hard thing about being an Internet mortgage lender, and why we put up a low-cost guarantee, is you can surf around sites and see some very attractive rates. Unfortunately, we believe all the fees aren't really disclosed, so our deal is to give people comfort," says David Arzi, Claritybank.com's chief executive officer. "I think also that giving sort of definitive deadlines for when we can close and three-hour approval, it sort of gives people a lot of comfort to apply."

Online promotional activity will likely continue, too, experts say. That means consumers willing to give up a neighborhood broker's handshake should be able to keep saving money for a long time to come.

"We feel that our model, by having centralized processing, underwriting, closings and not having to support the additional costs of a branch infrastructure, allows us to save a huge amount of money on the delivery of the loan to a consumer," says E-Loan's King. "We will continue to find new and exciting ways to pass off those savings."