Online mortgages boom despite housing bust
(Reuters) - With mortgage rates at historic lows and consumers' power through social media at an all-time high, those looking to buy homes or refinance can find the combination advantageous if they go online to shop for a mortgage.
The idea of borrowing money in an internet-based transaction isn't new, but consumers are finding that the strong, growing power of social media can help them find a comfort zone. Consumers recently beat down Bank of America's plan to charge for debit card use and Verizon Wireless' proposed "convenience" fee to pay bills online (link.reuters.com/vat26s).
Mark Schwanhausser, a senior analyst at Javelin Strategy and Research, says there is more pressure than ever for companies to perform well - with their every failing chronicled in comments visible to potential customers.
"If you build a track record of ineptitude, you're probably not going to succeed in the online marketplace," said Schwanhausser. He says the trend toward online mortgage lending makes sense.
"There's this growing expectation among consumers that this should be like the other things in their life with financial services: 'I should be able to do things on my clock,' " he said.
For consumers, Schwanhausser says, dealing with something as high-stakes as a mortgage online can be more challenging for those who have lots of questions and need some hand-holding along the way. "The challenges with any kind of financial planning is it helps to have someone across the table to ask."
On the upside, he says, "There should be a great opportunity for online shopping - making it apples to apples."
The ability to comparison shop and see what others think has been a boon to the concept of online mortgages. Adding in social-media commentary from others, mortgage shopping today isn't a whole lot different than buying a computer or a pair of shoes online - even though the stakes are a lot higher.
LendingTree, the granddaddy of the business at age 15, says when mortgage lending dropped last year by 20 percent, the online mortgage business didn't feel the pinch nearly so sharply.
Erin Lantz, director of the newer Zillow Mortgage Marketplace, says lenders themselves are encouraging the relatively recent sense of community among people shopping for home loans.
Filling out the reviews that help consumers pick and choose lenders, she says, is a "community responsibility." The company says it recorded about 10,000 user comments on mortgages in 2011 and had a 174 percent increase in mortgage requests last year - significantly bucking the slowed-down housing market.
"Not only can consumers can see service-level information - but companies can see that, too," she said. "It's hard to compete when your service levels don't compare to your rates and fees."
At one lender, RoundPoint Mortgage, those reviews are seen as impetus for change in how customers are handled.
"Those reviews for us, we describe them as pouring water over a leaky inner tube," company president Nick Florez said. "We can see what's wrong right away."
He says the company received a couple of comments about applicants feeling that they were in the dark during a nearly two-week period in which they waited for paperwork to be completed by the lender. In response, RoundPoint built in a system that notified applicants as each part of their loan package was completed - letting them know where they stood day by day.
"We heard the customers loud and clear," said Florez. One surprise, Florez said, is that the average age of the company's customers is about 45. He figured they'd be quite a bit younger.
"These customers tend to be very technologically savvy and they're very adept at being able to articulate the pros and cons of the process," he said.
As it is with other online-based financial products, mortgage lenders that focus on the web to draw their customers stake their business on being more affordable and providing a better user experience.
David Knoedler, of Camas, Washington, says he considered the traditional path of going to the bank or the local mortgage broker, but he noticed mortgage offerings while looking at properties on Zillow.com. He checked rates, read reviews and found a lender that fit the bill. He not only bought the vacation property he had found in nearby Oregon, but also ended up refinancing his home and a rental property.
"I got all my properties under 4 percent," Knoedler said. "It was a good, painless process."
In part because he was appreciative of others for posting reviews of their experiences with the lender (First Priority Financial) and broker, Knoedler said he also posted a review.
LendingTree says consumers can expect to see a range of rates - with a recent spread of 3.625 percent to 4.23 percent on 30-year fixed mortgages.
Doug Lebda, LendingTree's CEO, says about 1 percent of the nation's mortgages originate on his site, which connects borrowers with lenders. The online mortgage marketplace has come a long way since the early days, he says.
At the beginning, online offerings included perhaps five small lenders working remote operations. Now, "pretty much every mortgage company is going to have an internet presence and is going to be online," said Lebda.
LendingTree added 80 lenders to its site in just the third quarter of last year, according to Lebda.
Consumers' attitude changes toward financial transactions online have helped fuel the growth. "People were reluctant to give out information and were worried," said Lebda. "Now, pretty much any consumer is going to check online for rates."
Lenders compete for borrowers based on difference in rates (Lebda says the spread is now bigger than ever), and on reputation. The process isn't all that different from traditional home lending in the early stages, when it's all online.
Once a consumer submits an application, there will be good old-fashioned human interaction. A phone call will usually follow the application and a mortgage broker will discuss the application. Applicants typically can upload whatever documentation is needed for the loan and often won't have to meet in person with anyone until closing.
Not everyone is bullish on online mortgages. Jim Olenbush, who owns Cantera Real Estate in Austin, Texas, says he recommends his clients borrow locally.
"We warn clients against using online mortgage lenders because of the dozens of bad experiences we have witnessed firsthand," he said.
"The initial process is much the same if you are communicating with them by phone and email. The big difference is the number of problems and delays when it comes time to close. An out-of-state, online loan officer is oftentimes not familiar with the local market and state-specific rules."
In other words, it's not for everyone. But going online to borrow for home-buying can offer some savings and convenience.
(The author is a Reuters contributor. The opinions expressed
are his own.)
(Editing By Chelsea Emery and Dan Grebler)
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