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Sizing the Web-based Lending Market

By Jim Bruene on May 14, 2000 9:33 PM | Comments (0)

Sizing the Web-based lending market is difficult:

  •  The public pure Web-based lenders provide useful sales data, especially E-Loan, Mortgage.com, Finet (Table 4 to 6) and Lending Tree (Table 7 - 9); but they have relatively low share compared to traditional lenders who originate the majority of online loans but don’t usually report Internet volume separately.
  •  Many loan applications are multi-channel; applicants may have surfed the Web for rates, then applied in person or by phone.
     

At year-end 1998, the total outstanding debt by U.S. households amounted to approximately $5.4 trillion (source: U.S. Federal Reserve). There were more than 21,000 financial institutions providing the credit (source: U.S. Census Bureau). Forrester Research projected that $1.9 trillion in new loans were originated during 1999, with $25.7 billion (1.3%) originated online. It expects the online share to grow to $168 billion (9.5% of total) by 2003 (Table 2), for a compounded annual growth rate of 60%.


Table 1

Projected Online Loan Originationsns

number in thousands, dollars in billions

Source: Forrester, 1999             

OL %= percent of the dollar volume originated online            

1Total originated on- and off-line


 

Table 2

Projected Online Mortgage Originations

billion $

Source 1999 2000 2001 2002 <2003

CAGR

Forresterer

$19

$32

 

 

$91

48%

Piper Jaffray

$20

$35

$50

$80

$100

50%

Deutsche Bank

 

$60

 

 

$250

61%

Jupiter (high)

 

 

 

 

$155

n/a

Jupiter (low)

 

 

 

 

$101

n/a

eMarketer

$7.2

$26

$49

$74

$102

70%

  Average

$15

$38

$50

$77

$133

71%

Source: companies

Table 3

Online Mortgage Originations by Quarter, 1999

billions of dollars

 

Q1

Q2

Q3

Q4

Total
Total residential mortgage volume

$351

$381

$309

$247

$1,288

Internet enabled (retail B2C)

$2.0

$2.3

$2.0

$2.1

$8.4

  % on Net

0.58%

0.61%

0.63%

0.83%

0.65%

Source: Piper Jaffray, 4/00

Table 4

Online Mortgage Originations, Q3 & Q4 1999

billion $

Lender

$ Volume

Change

% of Tot

Q3

Q4

$

%

E-Loan

$301

$300

($1)

0%

17%

Mortgage.com1

$149

$186

$37

25%

8%

MortgageBot (M&I)

$64

$51

($13)

(20%)

3%

Finet1

$40

$59

$19

48%

2%

American Home Mtg

$40

$79

$39

98%

2%

Mult--lender sites

$511

$615

$104

20%

25%

Others

$852

$764

($88)

(10%)

40%

Total

$1,958

$2,054

$96

5%

100%

Source: company reports and Piper Jaffray, 4/00

1B2C share of total company volume


 

Table 5

Online Average Loan Size1, 1999

Lender

Q1

Q2

Q3

Q4

Mortgage.com

$189,000

$190,000

$193,000

$189,000

E-Loan2

$194,000

$187,000

$102,000

$55,000

Finet

$193,000

$188,000

$173,000

$155,000

Lending Tree

$65,000

$42,000

$28,000

$35,000

Source: Piper Jaffray

1Includes all types of consumer loans originated by the companies

2Average loan size fell due to acquisition of BofA’s Internet auto loan unit

Table 6

Online Acquisition Cost for Mortgages, Q1-Q3 1999

Lender

Num. Booked

Q1-Q3 Spending

Acquisi-tion Cost

Cost per Thousand Dollars Booked

Mortgage.com

12,057

$13.2 mil

$1,092

$5.73

E-Loan1

6,693

$20.6 mil

$3,077

$17.23

Finet

3,512

$3.9 mil

$1,113

$6.71

Lending Tree

14,743

$12.1 mil

$821

$24.16

Total

37,005

$49.8

$1,346

n/a

Source: Piper Jaffray

1Includes home equity and sub-prime loans referred to other lenders

Lending Tree

Lending Tree first revealed its operating metrics in registration statements prior to going public Feb. 15. The company has continued to provide enough operating details to make it a good source for online lending trends.

In 1999 the company transmitted 186,000 loan applications (aka “qualification forms”) to its network of 104 lenders (Table 47). The total dollar volume transmitted was $16.2 billion. The average loan amount applied for was $88,000. More than 27,000 loans were closed amounting to $941 million in loans and lines. These results sound a little better than they really are because a substantial number of the loans (60% in Q1 2000) were credit cards cross-sold to applicants for other products (see Table 45 for a breakout in Q1 2000). Applicants earned rebates as high as $500 for taking the credit But even backing out credit cards, in Q1 2000, Lending Tree closed 7,500 loans for an annualized rate of 30,000 loans worth nearly $2 billion, a healthy amount of activity in a market sector barely two years old.

00-may-Loans2.jpg

Lending Tree’s current tag line, “When banks compete you win,” strikes a chord with consumers.

Table 7

Lending Tree Revenue by Loan Product1, Q1 2000

dollars in millions

Loan Type

Applications

Closed Loans

Rev-enue

Num.

$

Num

$

Mortgages

58,521

$9,939

1,737

$277

$1,936

  % of total

44%

85%

18%

56%

47%

Home equity

30,817

$1,238

4,060

$166

$1,551

  % of total

23%

11%

43%

18%

37%

Credit card

15,672

$78

1,7861

$91

$701

  % of total

12%

1%

19%

2%

2%

Auto loans

24,707

$452

1,620

$35

$462

  % of total

18%

4%

17%

7%

11%

Personal loans

4,343

$40

269

$3.6

$46

  % of total

3%

0.3%

3%

1%

1%

Total1

134,060

$11,747

9,452

$491

$4,141

   less cards

118,388

$11,669

7,666

$482

$4,071

Source: company, 5/00

1Does not include 14,569 cards, $73 million in credit lines, and $232,000 in revenue cross-sold to other loan applicants

Table 8

Top Lending Tree Lenders* by Closed Loan $

Mortgages Home Equity
CMP Mortgage Bank One
iOwn.com Citibank
mortgage.com PNC Bank, FSB
MortgageSelect.com Provident Bank
New Century Sovereign Bank
Total lenders: 74 Total lenders: 49
Auto Loans Personal Loans
Auto Refinance Source Chase
Giggo.com The Dime Savings Bank
SmartFinance.com Sovereign Bank
Sovereign Bank Synergy FSB
Synergy FSB  
Total lenders: 13 Total lenders: 6
Credit Cards  
Aspire Card Services  
First USA  
Merrick Bank  
Total lenders: 7  
Grand Total 104 lenders

Source: company, total lenders as of 3/31/00; top lenders for the month of Oct. 1999, based on loans closed


 

Table 9

Lending Tree Metrics

1Includes a large number of credit cards cross-sold to other loan applicants which earns the applicant a substantial rebate at closing; in Q1 2000 there were cross sales of 14,569 cards, $73 million in credit lines, and $232,000 in revenue (see Table 7); 2Excludes revenues from licensing its platform technology; 3 Does not include the cost of the sales staff

Table 10

Web Traffic at Top Mortgage and Loan Sites

unique monthly visitors (thousands)

Source:  PC Data Online www.pcdataonline.com ; Gomez Advisors Summer 2000 Mortgage Scorecard, rank of 26 total www.gomez.com ; 5/00          

 n.r.=not rated

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