There are over 100,000 mortgage-related web sites. Should your buyers wish to explore their options online, how can you help them figure out which sites to use? Even though the offline business of this $1 trillion market dwarfs online transactions, as effective agents we need to be able to guide buyers interested in applying for loans online.

Why is this important? Estimates differ about both how much business has been conducted online and by how much it will increase. In June 2001, Franklin Raines, Chairman of Fannie Mae, is reported to have said that online mortgage originations are likely to increase to 15 to 25% of the market by 2003.

The Tower Group seems to agree and predicts that online lending will account for about 12 percent of total U.S. mortgages (“Fannie Mae Sees Slow Growth for Online Lending” National Mortgage News, 7/30/01). Gerry Griesser, President of The Trident Group, expects online volume to reach 8 to 10% by 2004.

More recently, The Wall Street Journal (1/14/02) shared the results of a report from "Inside Mortgage Technology." Online mortgages tripled from $15 billion during 2000's first three quarters to $49 billion through September 2001.

Money-Making Tip: Advise your more technologically savvy buyers to make sure their credit score is as good as possible before contacting a lender. Suggest that they report all income they’ve had for at least two years, including dividends, interest, overtime, bonuses, etc.

Online competition is fierce with top sites including, Countrywide.com, TheTridentGroup.com, Eloan.com, and QuickenMortgage.com, among many others.

Borrowers enter their Social Security numbers, estimated income, employment information, type and length of desired loan, and the down payment amount. Software is used to check the buyers’ credit scores, front- and back-end ratios, and savings. Applications are then approved or referred to human underwriters. Advantages include immediate decisions rather than the normal wait of several days or weeks.

Unlike brick-and-mortar lenders, today’s online applicants have an issue of credibility to consider. Will the lender selected show up at settlement with the necessary funds?

Not all online sites are a good bet for your buyers. In every finance class I’ve taught in the last 18 months, the horror stories outweigh the positive online experiences. This doesn’t mean online lending should be avoided. After all, it’s the buyers who have decided they like the convenience of mortgage web sites.

Urge your buyers to be cautious, however, because in the new world of online lending if at settlement the Web site is down and e-mails are returned undelivered, buyers may have lost their application fees and ability to close the transaction on time as required by their sales contract. Fleecing the adventuresome prospective borrower is a very real possibility. I am aware of FBI investigations and other irregularities due to buyers trusting in the advantages of Internet financing.

Money-Making Tip: Consider providing your buyers with the list of questions below. While not necessarily comprehensive, online lenders that can answer these questions satisfactorily are more likely to meet your buyers needs.

Recent articles in the press seem to focus less on the failure of online lenders to fund loans. Instead, as these technology lenders have improved their operations the problems encountered are those typically faced by traditional borrowers. Issues receiving attention include how long a specific interest rate is guaranteed when the buyer locks it in. Part of the problem has been buyers trusting well-known Web sites. The sites may be credible places to transact business or trade stocks, but that doesn’t mean they are good residential mortgage sites.

Here are some questions you can suggest that your buyers ask online lenders to ascertain their credibility:

1. Is the company’s main business lending for residential real estate?
2. Is the company a mortgage broker or a mortgage banker? A mortgage broker cannot fund its own loans and, depending on market conditions, may not have the necessary funds at settlement. The broker depends on investors.
3. Will a company representative attend settlement? Settlement problems often require lender participation to be resolved.
4. Where is the company licensed? Where is the company’s headquarters? Distance can equate to paperwork delays.
5. Where will the loan be processed? Will the paperwork be handled in-house or outsourced to another company?
6. How can buyers lock-in their interest rates? How long until the rate lock expires and how much does it cost? Will the rate be guaranteed until and including settlement?
7. How does the company define preapproval? A legitimate pre-approval is continent only upon the appraisal. A loan commitment with a list of other conditions is not a preapproval.

Source: Advantage, Mortgage Shopping on the Internet: Questions to Ask On-Line Lenders, April 28, 2000.

Published: June 21, 2002

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