www.mortgageauction.com

Is the eBay crowd ready to book mortgages through an online auction? It’s not as far fetched as it sounds.

The Company: A new national mortgage marketplace debuted Nov. 16 with a radio campaign in the Atlanta area. Mortgage Auction.com (Atlanta, GA), is a venture-funded, 30-employee (20 FTE) division of Real Estate Industries, Inc. It’s the first true mortgage auction site. Lenders bid against each other in a Web-based process hidden from view of the prospective borrower. In comparison, GetSmart and Lending Tree unleash multiple lenders on each applicant, and the applicant must determine who’s offering the best total package. The company already has already attracted 30 lenders nationwide with a target of 50 by year-end.

The Service: Under the MortgageAuction.com system, only the winning bidder is allowed to contact the applicant. The winner is the one with the lowest “modified APR” (which includes all possible fees). Lenders pay nothing to bid, and only $39.95 if they win, whether or not the loan closes. Borrowers use the system free of charge and are not obligated to follow through with a loan. Already some applications are being bid on by as many as a dozen lenders.

How it Works:

1. borrower submits full application online

3. company sends application packages including credit bureau report to lenders with borrower identity and social security number masked

4. lender has 24 hours to bid on a deal

5. borrower is notified of low bidder

6. the loan moves to close

The site suffers from several common problems associated with marginally capitalized Web start-ups: mediocre design, lack of credibility, no brand, lack of company information, lack of customer focus, etc. For example, if you were a potential user, you would want to know something about the companies bidding on your mortgage. MortgageAuction.com contains zero info on participating lenders. Only by reading their press release can you find mention of a single lender which is hardly a household name, InterLoan.com, a division of Finet Holdings’s (Walnut Creek, CA). Ironically, Finet operates a much better-looking loan marketplace, iQaulify.com, which has expanded to 16 lenders from four in May (OBR 5/98 ).

One area where its Web site shines is the Mock Auction where users can take a trial run on the process. But overall, the site is in serious need of a “graphics upgrade” if it wants to be taken seriously. It’s worse than CompuBank (OBR 10/98 ). And they must work on building more credibility with privacy statements, explanations of the process, guarantees, list of participating lenders, etc.

But we do like the concept, for the user anyway. It’s what a mortgage broker is supposed to do. Take an application and shop it to multiple lenders for the best deal. But with the traditional broker model, applicants have no easy way of knowing if the deal is actually best for their bottom line or the broker’s. By offering a competitive, unbiased auction marketplace, the user is likely to get a fair price.

The benefits for lenders are less apparent. Long-term, if you aren’t the low-cost provider, you won’t have much of a chance. But it will take a few years for the market to become efficient, and there will probably always be pockets of opportunity for niche players (e.g., rental properties in flood plains). In any event, early movers can use the auction market to temporarily pick-up market share and/or lower acquisition costs.

Since the company just launched three weeks ago, after a year in development, we’ll give them the benefit of the doubt that the site will be upgraded. Founder, Bill Koleszar, a banking veteran with stints in alternative delivery at Sun Trust and NationsBank, has understandably been concentrating on the technology, auction process, and lining up lenders.

Contact: William L. Koleszar is President of Mortgage Auction, (404) 943-1878, x 138.