New research from TowerGroup predicts steady but unspectacular growth for online mortgage lending over the next four years while the technology improves to better meet consumer needs.
Online mortgage sales have grown slowly over the past four years, reaching approximately $13 billion in 2000, or 1.3% of total U.S. mortgages originated that year. Following a significant increase to 3% in 2001, TowerGroup projects that the total online mortgage lending volume will be relatively flat in 2002 as the total lending market declines.
Still, over the next four years, TowerGroup forecasts a steady increase in online mortgage volume 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. Total online mortgage sales are projected to grow from $45 billion in 2001 to $180 billion in 2005, ultimately accounting for more than 12% of total U.S. mortgages.
Mortgage lending firms looking to gain the most value from the online channel and provide the most customer value should invest resources against two key growth drivers: "e-advice"--which helps guide users through the often complex lending process--and automated decisioning tools.
E-advice will bring the value-added components of offline lending to the online arena. During the pre-qualification 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. During the fulfillment process, e-mail and secure Web pages will provide real-time status information.
In reviewing previous industry projections of online mortgage lending, TowerGroup found that they tended to lack a standard criteria-either in defining the precise terms of online lending or in measuring its growth, according to Craig Focardi, a TowerGroup senior analyst. Furthermore, forecasts were often not linked to traditional technology adoption rates, the total origination market or the purchase/refinance dynamic.
Focardi underscored that e-advice and automated decisioning will emerge as the key drivers for increased consumer migration to the online mortgage channel. 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.
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, into buyers who drive a closed loan off the online lot.