Consumer Finance International Retail Banking Wealth Management LoBue Technology				Out of the Dark Ages ... REDEFINING THE MORTGAGE INDUSTRY PARADIGM It would appear that on-line mortgage originations are a current reality. However, customer-centric on-line service is an opportunity waiting to be taken. On the way to an important client meeting you spill coffee all over your best shirt. No time to return home and change, you decide to dash into a nearby department store for a new one. After parking, you grab your portfolio and look through the papers inside to make sure you have the necessary documents. No, not for the meeting - to get pre-approval to shop. It's all there, social security number, a current credit report, your last six pay stubs, and receipts showing what you paid for the last shirt you bought. Fortunately, you know exactly what you want. People who are 'just looking' need a notarized letter of credit from their banker. Of course it sounds ridiculous. Traditional retailers lure customers into their shops by targeting them with goods that meet their needs and desires. The buying public is free to roam the aisles in search of a shirt, a computer, or any other product that suits them. If the consumer arrives at the cash register with insufficient funds or credit, the savvy salesperson knows to redirect the customer's attention to a product that meets their financial limitations. Retailing on the Internet is no different. Payment is requested after the consumer is through filling his or her on-line shopping cart. If the price tag is too high, on-line shoppers cancel their order and go to a site that better meets their price range. For mortgage companies to succeed on the World Wide Web, they must recognize this fact. As it stands now, mortgage companies have taken their brick and mortar approach to selling loans directly to the Internet. Yes, most mortgage sites offer extensive information on the difficult lending process. Certainly, some mortgage companies are streamlining the lending process to reduce costs and combat diminishing profit margins. But throwing in calculators, updating annual percentage rates daily, and delivering testimonials from satisfied customers will not capture an Internet user's interest. These steps are insufficient in an arena where the consumer makes buying decisions based almost exclusively on price, and is gone with a click of a mouse button when a roadblock appears. On-line consumers quickly leave a site when they realize that they can't see a lender's products until they have submitted their personal financial information. Surfing the Internet is much like entering an enormous shopping mall for the first time. On the first visit, choosing the entrance closest to a favorite boutique is almost impossible. But after visiting a few times, it becomes easier to navigate the most direct route. Borrowers shopping on-line for a mortgage can choose from more than 2,500 sites, with more opening every day. These on-line shoppers expect lenders to have homepages similar to the retail sales sites they are familiar with, and will choose to remain only at sites that are comparable to their previous on-line experiences. There are basically only three types of mortgage sites ­ those operated by a single lender, sites that provide links to a variety of lenders, and auction sites that send the winning lender to the borrower. These sites are all interested in signing up new borrowers, but very few take a customer-first approach. SINGLE-LENDER SITES   At first glance, single-lender sites appear to be very similar to retail sales sites. The homepages of lenders such as usaloan.com and countrywide.com fill the screen with their brand name and quickly route the visitor to the department they are looking for... first-time home buyers, refinancing, or second mortgages. They suggest that first-time home buyers learn the basics of mortgage lending before applying for a loan -- as if these borrowers will be given the freedom to decide for themselves what loan is best. But despite a borrower's level of financial finesse, when he or she is ready to see what types of loans are available, wham!!! The curtain comes down on the glitz and glamour. For the next 10 minutes or more, prospective borrowers are instructed to fill out personal financial information before proceeding. Even if one line of the questionnaire is left blank, the screens refuse to go forward, restricting the consumer from further information. Some of these sites take the information on-line with promises that a loan officer will either call or e-mail later with a decision. Borrowers are then left to wonder if they can meet the credit requirements of the mortgage lender. If they want to stay in touch, they can read about the company's new job listings or learn more about the lending institution; its history, annual sales figures, and other facts that management finds interesting. With luck, borrowers may receive e-mail updates, but from this point on it's a return to the traditional method of lending. A number of single-lender sites are eliminating commissioned loan officers altogether in an effort to cut costs, but have done it at the expense of value-added customer service. Instead of full-service professionals, they offer salaried mortgage counselors who help guide borrowers through the process by phone. The savings are then passed on to the consumer. At rockloans.com, a Michigan-based lender, borrowers can choose to work with either a loan counselor or a loan officer, but the more experienced loan officer will cost more. LINKING SITES   Prospective borrowers often fear they are paying too much for a loan. Linking sites such as eloan.com, quickenmortgage.com, and lendingtree.com are not direct lenders. These companies try to eliminate buyer remorse by providing borrowers with extensive industry information and access to a wide range of lenders through links to their Web sites. The credit information borrowers must provide is then used to match prospective borrowers to a lender who meets their needs. The actual process is handled over the phone by the lending institution. The benefit for the consumer comes from the wide variety of lenders they can review. It is far easier than going door-to-door, but while this service costs the consumer nothing, it still requires them to wait for loan approval before they can make a decision on which product they want. AUCTION SITES   Probably the least customer-centric sites are mortgage houses like priceline.com and mortgageauction.com. Planning a vacation? While bidding for airline tickets and hotel rooms you can now pick up a mortgage as well. But if mortgage auctions work like their hotel reservation system, it's buyer beware. Borrowers are required to fully disclose their financial information along with their best guess at an acceptable interest rate, points, and closing fees. Consumers have no idea who will win their bid. At priceline.com, prospective hotel guests auctioning off their weekend stay must accept the winning bid. Will the mortgage auction agreement also force the borrower to accept the proposal from the winning lender? Priceline.com has admitted that to jump-start the company and create favorable buzz on the Net, they often paid the difference between what an airline or hotel reservation charged and what the bidder wanted to pay. Prospective borrowers are at the mercy of these sites to connect them with responsible lenders who have free access to the information the borrower must provide, as well as credit checks they can make on their own prior to contacting the borrower. CONCLUSION There is no reason for mortgage companies doing business on the Internet to demand that the potential client disclose their financial data prior to providing information on the company's exact products and fees. The risk that a loan officer might quote rates that have changed, or cannot be offered to a borrower, no longer exists. Fast-changing lending rates can be obtained instantaneously and credit checks are easily accessible. Giving borrowers the opportunity to choose from a variety of loan instruments will not only make for a more satisfied customer, but speed up the lending process as well. Buying a house will never be as easy as replacing a stained shirt, but because today's borrowers have easy access to information on the entire lending procedure, they can now choose a lender based on price, and manage the home buying process with or without the assistance of a traditional loan officer. Lenders must redefine the way they do business on the Internet. Correctly combining the Internet with sophisticated software programs will allow mortgage companies to make better use of their resources, improve customer service, and remain competitive. Even though on-line originations continue to be only a small percentage of the industry, the fact remains that as more and more Internet users become comfortable shopping on-line, a larger portion of the market will go to companies doing business over the Internet. The most successful will be those lenders who adopt selling techniques that meet customers' on-line expectations. Lenders who continue to believe that the added value of their personal service will always be a key factor refuse to see the full potential of the Internet. They will fail to redesign their sites to meet consumers' expectations will lose out in the long run. return
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