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December 4, 2000
"I keep reading about mortgage web
sites that have gone out of business or are struggling to stay afloat. Early
predictions that they would take about 25% of the market within 5 years seem to
be far off the mark. How do you explain this, and what�s your forecast?"
In one sense, the mortgage web sites
have been a major success. Surveys indicate that more than half of all borrowers
explore on-line before they get a mortgage, and the number keeps rising. The
internet has become a major information source for mortgage borrowers.
The problem for the sites has been that
few consumers transact on line. They take advantage of the net to educate
themselves, then go to a lender or a mortgage broker to get their loan off-line.
Mortgage web sites that depend on transactions to generate revenue are having a
tough time.
Probably the most important reason why
so few borrowers transact on line is that so few of them have the confidence to
go through the process alone. Most want help from an expert who will be
accountable to them. The Help Desks and Chat Rooms that some sites offer are not
an adequate substitute for a loan counselor with an interest in getting the deal
done.
A second reason is that none of the
mortgage sites have found an adequate way to deal with market nichification: the
division of the market into literally millions of niches, based on
characteristics of the borrower, the property and the transaction. Niches carry
different interest rates, points, and down payment and other underwriting
requirements. To find the niche in which a particular borrower falls, a great
deal of information must be collected from that borrower.
Borrowers resist the tedious inputting
of information required to place them in the proper niche. People on the net
usually have short attention spans, they don�t understand why all the
information is needed, and many suspect that it isn�t.
To some degree, therefore, every
mortgage site caters to the impatience of users by limiting the information they
request. But even a truncated list is too long for many users. And because of
the omitted information, some users who do go through the process are placed in
the wrong niche by the site�s automated system. The prices and underwriting
requirements have to be corrected later, by human beings. This defeats a major
purpose of transacting on-line.
But remember that the existing mortgage
sites are only the first generation. A second generation of sites will emerge in
the next few years that will integrate loan counselors into the on-line process.
High-tech and high-touch will be combined.
The generation two sites will have three
new high-tech features. First, the automated system will place every user in the
correct market niche. The technology exists to do this now, but it has not been
deployed because of user resistance to long questionnaires. That resistance will
disappear, for reasons indicated below.
Second, the site will offer on-screen
approval. Users would be shown the loan terms at which they have been approved,
subject only to confirmation of the accuracy of the information the users have
entered.
Third, the technology will help
borrowers in making the four critical decisions that must be made on every loan:
the type of loan, the down payment, the term, and the combination of interest
rate and points. Existing sites require users to make their own decisions on
these matters, providing little or no help.
The process of collecting the
information needed to place the user in the correct market niche, and assistance
in making the four critical decisions will be tied together. The flow of
information will run in two directions, with the borrower�s answer to one
question affecting the next one. Filling out the questionnaire will be a
"give and get" process for the user, rather than just a
"give". A counselor will be available to move the process forward.
In the multi-lender version, borrowers
would select from mortgage brokers who have been approved by the site and
screened for proficiency in using the site�s technology. The site would list
approved brokers by location and URL. The brokers, however, would be accountable
to and paid by the borrower, who would negotiate their fees directly with the
broker in advance of service. Brokers could communicate with borrowers by
telephone, email, in person or through any combination of these.
Single-lender sites would work
essentially the same way, with employees serving as the counselors rather than
mortgage brokers.
Copyright Jack Guttentag 2002
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