Tuesday, August 29, 2006

Online Mortgages Easier than ever

The vast majority of us already use the Internet for email, to stay abreast of breaking news stories, to shop, surf the net, and play games. So the fact that people are now using it to get mortgages should come as no surprise. Online people get acess to various tools and spesially mortgage calculator so they can right away make the mortgage calculations. What is a surprise, however, is how fast the practice is growing.

According to a study by the Jupiter Research Corporation in New York, roughly 4 percent of all mortgages taken out in 2002 were financed on line; that works out to 1 percent for new mortgages and 3 percent for refinances. That was then. Today the number is climbing so fast that Celent, a Boston-based financial services consulting group, predicts that by 2005, 35 percent of all new loans will be generated online. In a recent report, the company says that currently 56 percent of all U.S. banks and 70 percent of all credit unions in the country have automated loan origination systems up and running. The company adds, “The online lending market is still in its early stages.” That doesn’t even include any of the non-bank and non-credit union mortgage lenders who now operate online.

Kurt Pfotenhauer, a senior vice president for the Mortgage Bankers Association of America, explains, “A number of our members are using the Internet to reach consumers. In general, I think society and this industry are still in the midst of finding out just how the Internet will dramatically change our lives and the way we do business. As with every other business, the Internet is changing the way we talk to our customers. It is making information more available to people. This is leading to a more informed borrower, and that will be to the benefit of everyone.” Like other industry observers, Pfotenhauer says that as more people become computer literate and get used to doing more and more business online, online lending will grow. Most people are using the web to calculate their mortgage payments via mortgage calculator or loan calculator.

Go online and type the words “online morgage lender” into any search engine you choose. I recently did it with Google.com and was told there were 764,000 reports. Now try it with the name of your city. I picked a number of different locales and came up with: 20,200 reports in Chicago; 17,200 in Houston; 8,570 in Pittsburgh; 12,700 in Las Vegas; and 2,620 in Knoxville, Tenn. If you were to consult the Yellow Pages for any of those cities, the list of mortgage companies would be a lot shorter. If you were to pick those you could drive to in 10 minutes or less, the list would be shorter still.

Celent says online lenders have increased efficiency and profitability, lowered costs, and increased the opportunity to offer loans with lowest morgage rates to more people in a greater number of cities and towns. You may be 10 minutes away from your “local” neighborhood lender by car, but you are less than 10 seconds away from hundreds or even thousands of lenders who give a loan with good morgage rates in your neighborhood via the Internet. As an added bonus, Celent says that research shows that Internet “offices” give lenders “higher levels of customer acquisition and retention.” In other words, people who start to handle their finances online—everything from routine banking to getting a mortgage or refinancing—tend to continue to handle their finances online. They also tend to be willing to try conducting different types of financial businesses over the Internet. First, however, they have to get comfortable with the idea.

One lender who has seen this happen is John Waymire, vice president of debt consolidation site. His company started offering online mortgages in 1993. Today, all his business is online, and it covers the entire state of Texas. Waymire agrees that many people are somewhat hesitant to take out the single biggest home morgage of their lives without shaking hands with their loan officer. “People get scared making a deal without human contact,” he says. But they get that human contact over the phone. “There is always a personal contact. They can call us on the phone. They can email us, or they can just fill out the online application and submit it. Once we hear from them, we give them a phone call.”

One of the major advantages of working online is that lenders do not need as many physical offices. They are as close as the computer and the telephone. This translates into lower overhead. Although much of the process can be done electronically, eventually human beings have to sign papers. That’s where overnight delivery services come into play. When online lenders overnight a package to a borrower, they normally include everything the borrower needs, as well as a phone number to call in case of any last minute questions. The borrower still has to go to a real estate lawyer, escrow office, notary, or title company, depending upon where he or she lives.

The Internet also is changing “when” people start looking for a loan. Most homebuyers used to find the real estate agent and the home they wanted first. The real estate agent was often the person who steered the buyer to a lender. This is no longer the way it’s done. More and more real estate agents want to deal only with people who are pre-qualified for a loan. They ask for a pre-qualification letter before they are willing to talk to them. It’s the same with a lot of sellers today—they want to deal with pre-qualified buyers. Waymire says, “The Internet is the fastest way to get pre-qualified.” It is also a quick way to get a loan once you have found the home you want.

Aside from the speed and the fact that he can handle a loan from anywhere within the state of Texas without leaving his office, Waymire concedes that there are also personal advantages. “I can dress casually. I don’t have to wear a coat and tie anymore.” There are also some personal advantages for borrowers. Lenders do not have to get dressed up to go to work, and neither do online customers. They can apply for a loan at 2 a.m. in their pajamas, whether those pajamas are being worn in Maine or Hawaii, Alaska or Texas.