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Mortgage industry trending toward digital transactions
January 11, 2011
After Brandon and Rebecca Chustz had their first baby in October, the couple decided it was time to buy their first house. The Dallas residents searched online at sites such as Trulia and Zillow to get an idea of which part of town they wanted to live in, then narrowed down their search by size and, more importantly, price. They drove through prospective neighborhoods, surveyed the environment, and eventually settled in a house further from downtown than they previously lived. "We never had an agent through any part of the looking process, and we only physically stepped into one house," Brandon Chustz said. "We were able to find what fit us and tour every house that was a potential candidate online." The mortgage rates available online were a big player in the Chustz's decision. The Chustz family isn't alone. According to a recent report by LendingTree.com, 21% of consumers use the Web to shop for their home loan. And John Walsh, president of lender/broker Total Mortgage Services, believes that percentage will increase in the coming year, illuminating an upward trend toward online mortgage processing. "Only a few years ago, the percentage of potential borrowers that shopped online for a mortgage was negligible," Walsh said. In the forthcoming year, "borrowers will significantly increase their use of the online mortgage processing — from research to closing." Some origination firms are already witnessing this trend. For example, Detroit-based Quicken Loans runs its entire origination business online. The firm, which reported a 25-year record high for originations in September, said 65% of its clients that close loans submit an application directly through their online website. The other 35% are directed to Quicken by marketing tools and usually follow up with the lender by phone. "However, what is important to note … is that regardless of how the client begins their mortgage with us (online, phone, etc.), every Quicken Loans client utilizes our online origination process," the firm told HousingWire. But not all originators use the Web to conduct their business. Bank of Internet representative Brian Swanson said only about 15% of overall originations at his bank come from direct submission of an application online. He added that more than 90% of his customers are sourced online, through ads on Google or LendingTree. Bank of Internet began originating mortgages two years ago. Swanson said the bank's online presence is strictly a retail channel, and that through the Internet borrowers can only originate conventional conforming loan products. However, the bank is also prominent in the jumbo mortgage space. "Our jumbo origination is done through wholesale and correspondent channels," Swanson said in an interview. "It's more difficult to capture that customer over the Internet." On the REO side of the mortgage industry, online transactions are an increasing trend. Auction.com, a foreclosed home auction firm, now makes every auction sale it does available to online bidding. CEO Jeff Frieden said 50% of its assets are selling online. That is, in fact, why he rebranded the company, formerly known as Real Estate Disposition or REDC. "For five years, we’ve had an online bidding component as a compliment to our live ballroom auctions. It took two years to build our existing online platform because of our stringent regulations to recreate the live auction experience for our bidders," Frieden told HousingWire. "We believe so much in this online revolution and platform that in February 2009, we purchased the domain, Auction.com, for $1.7 million, and have rebranded the company." In 2010, Auction.com sold 35,000 residential and commercial assets. The firm reported that all the commercial properties and notes, a total of $800 million, sold online, as did half the residential assets, a total of $850 million. So what set this trend toward digital mortgage transaction in motion? Total Mortgage Services President Walsh argues the trend is on the rise with the people who know the Internet and feel comfortable using it. "Going forward, one of the driving forces for online mortgage shopping will be younger, first-time home buyers, especially as Generation X and Generation Y consumers who have grown up with computers look to become home owners," Walsh said. Rick Grant, a mortgage technology industry analyst, claimed comfort and familiarity with the Web as the driving force. He said for years now, lenders have been trying to figure out a way to get online shoppers to directly interact with lenders over the Web. The task has proved difficult, he said, because at the beginning of the digital revolution (1990s) people weren't using the Internet to complete transactions. "That's not the way people were using the Internet back then," Grant said. But he argues that the recent trend won't lead to a reformation in the way the industry originates mortgages. Because older people getting loans are not used to the texting and tweeting, Grant argues, they won't use the Internet solely to originate a mortgage. However, he doesn't think the younger generation will convert mortgage origination to a strictly digital process either. "Even my daughter, who is 8 years old, has been able to boot up a computer since she was 3. When she's 21, 25 or 27 and she wants her first mortgage, she could use the Internet to originate it. But I doubt it," Grant said, "because that is the single most important transaction of her life, and she'll like to have that face-to-face experience." Write to Christine Ricciardi. 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