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Matt Lehman, Gomez Inc.
Matt Lehman, Gomez Inc.
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Re-fi Boom’s End Signals Switch In Online Mortgage Banking Tactics

The Q1 2004 Internet Mortgage Scorecard results bear out the old adage that in an economic shakeout, the strong tend to get stronger.

Focus on First-Time Buyers

With the re-fi boom finally petering out, firms are striving to make novice home buyers more comfortable with the online process. The number of mortgage products now available to home buyers has exploded, and Scorecard firms are now catching up by offering sophisticated Loan Wizards and special site sections, replete with tips and advice aimed specifically at first-time home buyers.

Another impact of the role of new home buyers on our Scorecard was growth in the number of firms offering interest-only or flexible-pay mortgages. In these loans, a borrower is only required to pay current interest on a mortgage loan. The upside for the borrower is greater purchasing power, a valuable tool for a first-time buyer trying to get into a home in a more expensive market. As a result, some Scorecard firms are actively promoting these loans. However, given the possibility of negative amortization associated with these loans, firms should be just as active in informing customers about the risks of an interest-only loan.

Guarantees Go by the Wayside

Another change evident is a reduction in "guarantees," which speaks to the market's change in focus from refinancing to purchases and home equity products. In the Q2 2003 Mortgage Scorecard, more than one-third of the firms offered a guarantee for providing the lowest rate. That figure has declined to about 13 percent for this Scorecard.

One area in which guarantees are still prominent is closing costs. In fact, roughly 40 percent of Scorecard firms offer some type of guarantee that the up-front closing costs shown to customers will not change. These types of guarantees can help assuage customer confusion around closing costs.

Another way to meet customer expectations toward closing costs is the one-fee mortgage product, through which customers are given a single cost to close. ABN AMRO's offering has been among the leaders in this area; Ditech has also been out front with its $395 refinance product.

Closing cost guarantees and one-fee products also mitigate one of the largest areas for customer complaints -- significant changes in closing costs from the good faith estimate. New HUD regulations address these customer concerns, but clearly, the online offerings from Scorecard firms are working to provide peace of mind to customers.

Renewed Focus on Home Equity

Another notable change is the impact of home equity products, primarily home equity lines of credit (HELOCs). As mentioned above, Countrywide introduced a specialized HELOC area called MoneyLane, as did Quicken Loans, which launched EquityOnline. Both MoneyLane and EquityOnline are full online application and decisioning services that enable customers to receive instant online approval of their HELOC applications and obtain their funds within as little as two weeks.

One HELOC-related feature now available on nearly half of the firms (up from just 25 percent in the Q2 2003 Mortgage Scorecard) is a home valuation estimator that either generates a specific value range for a customer's home or can deliver recent home sales for a customer's neighborhood.

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