Research from TowerGroup projects steady, but not spectacular, growth for online mortgage lending over the next four years, and predicts that “e-advice” and automated loan “decisioning” tools are critical to increased consumer adoption.
Online mortgage sales have grown slowly over the past four years, according to TowerGroup, reaching approximately $13 billion in 2000, or 1.3 percent of total U.S. mortgages originated for that year. Following a significant increase to 3 percent in 2001, TowerGroup projects that the total online mortgage lending volume will be relatively flat in 2002 as the total lending market declines, increasing to 4.35 percent.
TowerGroup forecasts that total online mortgage sales will grow from $45 billion in 2001 to $180 billion in 2005, ultimately accounting for more than 12 percent of total U.S. mortgages as more consumers become comfortable applying online for home purchase loans, and as online loan product selection tools are enhanced to better match borrower preferences to loan programs and final price offers.
Mortgage lending firms looking to gain the most value from the online channel, and to provide the most value to current and potential customers, should invest resources against two key growth drivers: “e-advice” and automated decisioning tools. “E-advice” will bring the value-added components of offline lending to the online arena. During the prequalification stage, when borrowers submit their loan preferences and financial profile online, they will be able to engage in a collaborative dialogue with Web-based loan product selection tools, which will help consumers through the complex lending process.
Automated loan decisioning systems will add speed and transparency to the online mortgage process. Once a borrower submits an online application, a lender’s automated decisioning system will respond with a loan approval and firm interest rate offer within minutes, rather than hours or days. During the fulfillment process, email and secure Web pages will provide real-time status information to assure borrowers of the progress of their request.
“Interactive ‘e-advice’ at the start of the loan process, coupled with rapid automated underwriting and loan pricing tools once an application is submitted, will make a major difference in driving consumer adoption rates,” said Craig Focardi, a TowerGroup senior analyst. “These enhancements will help turn ‘tire kickers’ — those consumers who use the Web only to shop for information or rates — into ‘test drivers’ who submit loan applications and ultimately, buyers who drive a closed loan off the online lot.”
The online audience of home shoppers is out there on the Net. More than half of today’s homebuyers use the Internet when looking to buy a home, according to a survey by homebuilder KB Home.
The survey showed that 58 percent of recent homebuyers used the Internet to find information on homes during their search, with 44 percent using the Internet at least once a week and 64 percent using it at least 2 to 3 times per month. Most often, respondents used the Internet to search for homes in their preferred location (59 percent), to locate homes by price (55 percent) and to locate homes by size (33 percent). The survey results include responses from nearly 10,000 recent homebuyers in high-growth U.S. metropolitan areas.
Real estate agents are also incorporating the Internet into their jobs. The 2001 National Association of Realtors Member Profile found that nearly nine out of 10 members have a computer, more than three-quarters use email and the Internet for business purposes and four out of 10 have a Web page.
For residential brokers, 87 percent post listings on at least one Web site, and 54 percent report some of their business is generated from online services. Four percent of members generate more than 20 percent of their business online.