When a 1998 Intellitech survey showed that only 14% of 1,000 refinancing homeowners actually applied online, that study got a lot of play in mortgage industry circles as comforting proof that the Internet was still a marginal channel supported by unperfected technology and still-sketchy business models. Word had it that E-LOAN, HomeShark, and QuickenMortgage - the new multi-lender sites grabbing all the headlines - were unable to chalk up conversion rates better than 15-20% on the leads they sent to participating lenders. When compared with average closed-loan ratios of 65% for conventional mortgage brokers, the performance of the online channel seemed rather pitiful.

However, because the development of the online channel is happening so rapidly, it's wiser to focus on the strongest accomplishments of Internet mortgage players rather than their early fumblings. After all, 62% of those homeowners surveyed reported using the Internet to shop for a mortgage, which placed them only a mouse click away from applying online as well. And some of the online mortgage websites, notably Access National Mortgage and Keystroke Financial, have tallied average conversion ratios in the 80-90% range, results that any traditional broker would envy. The big difference was that Access and Keystroke charge consumers a fee to make an actual application to weed out the tirekickers. Moreover, like iQualify they establish a key building block for profitability by incurring no expense before receiving revenue. Sites like these are the proving ground for giving borrowers an automated underwriting decision in minutes, enabling them to know they will be approved for a loan before they tender their credit card numbers to make an actual application.

Can E-LOAN, HomeShark and QuickenMortgage follow suit to achieve similar results? Absolutely, if they so choose, but not without slowing the velocity of their hell-bent-for-leather efforts to establish brand and build traffic. At this stage of the game, they see a visitor as being almost as good as a borrower and early profitability as a lesser goal than developing marketshare and brand recognition.

The crucial piece in realizing the potential of online originations is the processing piece. Again, a common view is that once you get past the sophisticated consumer interface, the hand-off to back-end loan processing reverts to old-fashioned 50s-era procedures and cranky old technology. In many cases that's true. Currently no more than 10% of mortgage websites are yet equipped to handle even part of the mortgage transaction, beyond offering a phone and number or an email address. But under the competitive pressure of sophisticated sites such as GetSmart, Intuit's QuickenMortgage and Microsoft's HomeAdvisor, the hand-off from the consumer site to back office is growing more and more seamless, allowing consumers to key in their information once for automated transfer to the back-end database. Moreover, companies like Contour, Mortgage.com and Framework are now offering outsourcing services to processing Internet-generated loans for lenders cheaper and more quickly than they can do it for themselves.

Though some Internet mortgage players are still struggling with problems of scale, Framework, for one, specializes in large system like the New York City's 911 network. Framework boasts that its system is capable of processing ALL of the record $1.4 trillion in mortgages generated on and off the Internet for 1998.

As the Internet mortgage players increasingly turn their efforts toward gaining the respect and trust of Realtors and home buyers, it would be shortsighted to bet they won't succeed. You have only to look at the rich trove of consumer information and tutorial help available on sites such as HomeAdvisor and the other leading multilender sites to conclude that consumers will come more and more to trust them as resources and transactional platforms.

Published: March 18, 1999

Use of this article without permission is a violation of federal copyright laws.

Editor's Note: This article reflects the opinions of Scott Kersnar only and not necessarily the views of this or any other publication, organization or Website owner.