E-mortgages haven't ignited yet; buyers still want personal touch
By Holden Lewis • Bankrate.com

Online mortgages have been around for a few years, but they still appeal mostly to a few gutsy pioneers looking for good deals and speedy service.

Most mortgage shoppers aren't pioneers. They would rather be safe than sorry. They have lots of questions and they don't quite trust answers given by Web sites. They fear that things will go wrong if they can't look a lender in the eye.

Mortgage hunters want to be reassured by a live human being that they have selected the right combination of rate, points and fees. They want to know the status of their mortgage application, from the initial paperwork to the appraisal and all the way through closing. They don't want to spend too much or wait too long.

Because house buyers are so cautious, less than 2 percent will get their mortgages online in 2000. Experts say it will take years for online mortgages to become popular. For that to happen, lenders will have to do two things:

• Provide trustworthy advice so consumers can make the right choice. For example, making it easy to decide whether it's better to put down 20 percent with no points or 15 percent with 5 points, whether to get a fixed rate or an adjustable rate, whether to get a 15-year or 30-year mortgage.
• Save money and time for online borrowers.

Real money
A few borrowers, mostly people refinancing their houses, already find online mortgages to be worthwhile. About 1.4 percent of the mortgage dollars borrowed in 2000 will stem from online applications, estimates Richard Beidl, research director for the TowerGroup. That 1.4 percent might not sound like much, but it represents more than $14 billion.

Beidl expects borrowers will apply online for a little over 10 percent of mortgages in 2005. Not a huge percentage, but when you spend a billion here and a billion there, pretty soon it adds up to real money. Beidl points out that it took about 15 years for automated tellers to catch on, and he expects online mortgages to get popular more quickly than that.

"It's amazing the kind of changes we'll see over the next few years that are Internet driven," he says. "We see the Internet as a huge force in the mortgage business." Especially, he adds, in speeding up the approval process and getting borrowers' questions answered.

The best-known companies that accept online mortgage applications are E-LOAN, Countrywide and Quicken Loans. All three realize that, to win business, they have to give sound advice and streamline the application and approval process.

The three companies give advice on their Web sites through question-and-answer lists and interactive forms, similar to what Bankrate.com provides through its stories, rate comparisons and calculators.

Online shoppers, offline borrowers
These online mortgage companies face a serious problem, though: Consumers often use them to get advice and rate information, but they go elsewhere to borrow.

E-LOAN president Joe Kennedy estimates that 10 percent to 15 percent of the mortgage shoppers in America go to his company's site, but most log off the Internet and ask a local lender to match a rate they found online. His goal is to persuade more of those people to apply at his company's site.

Kennedy agrees that online mortgage lenders need to answer questions and approve loans quickly. But he doesn't think that's enough. Before he went to work for E-LOAN, Kennedy was vice president of sales for Saturn, the car company. Taking a page from the Saturn playbook, he wants to attract mortgage shoppers with simplified pricing.

E-LOAN doesn't charge origination fees, underwriting fees, processing fees, document preparation fees and so on. Kennedy calls them lender's fees or "junk fees," and he notes that they aren't tax-deductible.

"Consumers not only like the ability to compare, I think consumers like companies that present their pricing in an honest, straightforward way," Kennedy says. "There's a second advantage: that it sets up easy comparison."

Kennedy is gambling that, even if E-LOAN charged a slightly higher interest rate for a particular mortgage, a savvy borrower would compare the total cost of an offline loan, including fees, with one from E-LOAN, and conclude that the latter offers a better deal with more tax advantages.

He also is gambling that the same no-haggle policy that contributed to Saturn's success will help E-LOAN thrive.

Dead trees aren't dead
Even when you apply online for a mortgage, much of the process tends to be low-tech. Your online application might be improved in just half an hour, but with a long list of conditions: You'll have to schedule an appraisal, get homeowners insurance and send in tax returns, paycheck stubs, bank statements and other relevant documents.

Most online mortgage companies operate phone centers that you can call with questions. Most of them let you log on to a Web site and check the status of your loan, and some of them send e-mails whenever a milestone is reached -- when they receive your financial information in the mail, for example, or when the appraisal has been completed.

At the end, you'll still have to sit at the settlement table and sign lots and lots of paperwork. Even in the age of electronic signatures, you have to rely on dead trees.

For most house buyers, the process still takes several weeks, even with an online application. That's OK for most people, Kennedy says, because they need that time to pack and move, schedule inspections, make repairs, and freak out and calm down over the financial commitment they're making.

That said, E-LOAN once helped a hurried buyer close on a house four working days after application. And most refinances, Kennedy says, are completed within 15 days.

Is it for you?
Who makes a good candidate for applying online for a mortgage? Beidl says online borrowers tend to be younger, more affluent and more tech-savvy. Many live on the West Coast. They borrow about 40 percent more money than the average mortgage borrower. Most of the time they are refinancing instead of buying a new house.

Of course, you don't have to be young, rich and Californian to apply for a mortgage online. Even older, middle-class Midwesterners might find it worthwhile to apply online. You'll find the road to an online mortgage smoother if you are willing to divulge income information (by submitting copies of tax returns and paycheck stubs), have good credit and are borrowing within your means.