Gomez Advisors, the financial services consultancy and widely cited consumer rating service, tracks more than 300 online mortgage provider, and ranks the top 20 meeting the following minimum criteria: provide pricing updated daily, offer online purchase mortgage application, offer online processing through closing, provide 24x7 dynamic loan-status tracking, and geographic coverage of at least 50% of the U.S. population.

The top 5 have remained relatively constant since Fall 2000: IndyMac has been first during all three quarters; LoansDirect has been 2nd or 3rd; MortgageBot has moved from 5th to 3rd; Countrywide moved into the top 5, dislodging Infoloan.com which fell to 7; and E-Loan, which has fluctuated from number 2 in the fall to 10 in the Winter, and is now back up to number 5. All top 5 lenders, except E-Loan, have seen their total score improve since Fall 2000. E-Loan’s score has dropped nearly 25%, from 6.5 to 5.0.

Table 1

Gomez Mortgage Scorecard

ranked by Overall Score

Source: Gomez Advisors, 5/01  www.gomez.com  (781) 768-2100                 n/r = not ranked

¹MSDW = Morgan Stanley Dean Witter

²Mortgage.com went out of business in late 2000; its domain name and certain assets were purchased by ABN AMRO, which reopened a mortgage lending operation under the mortgage.com brand in May 2001

Table 2

Top U.S. Online Mortgage Originators*

retail originations in $ millions

Source: Inside Mortgage Technology, May 21, 2001, www.imfpubs.com , (301) 951-1240 (LendingTree was added to the list by OBR based on company reports)

*Excludes wholesale (B2B) mortgage originations

1)  Includes originations via telephone channel in addition to online

2)  Since LendingTree doesn’t originate loans itself, but passes them on to its 121 lenders, some of that volume may be reported in the totals of the other lenders, although the other lenders may be including LendingTree volume under its wholesale originations, which are not included in this chart; Lending Tree originations do not include home equity loan volume of $435 million in Q1 2001, $389 million in Q4 2000, and $1.41 billion in FY 2000; total mortgage plus home equity originations would be $1.5 billion, $1.2 billion, and $3.9 billion respectively

3)  Estimated by Inside Mortgage Technology; On May 31, E*Trade said it had originated more than $1 billion in the first 3 months of its ownership of LoansDirect with March at $308 and April at $385; subtracting from $1 billion, February must have been at least $307; another $583 million is locked in the pipeline

4)  Estimated by Inside Mortgage Technology

Table 3

Consumer Opinions of Mortgage Lenders Logged at Epinions.com

Source: Epionons, 6/5/01         *Ratings are on a 1- to 5-star scale, with 5 the highest; only these three lenders had more than a couple reviews

Several caveats with this data: a.) Most of the ratings are from 2000, so they may not be indicative of current user experiences. b.) It’s the nature of the business that there will be a significant number of declined loans (often many more declines than acceptances), so there will always be a significant amount of sour grapes at any online forum; we are not surprised that E-Loan and LendingTree have 40% approval ratings; but in comparison, Countrywide’s 82% approval is extraordinary.

Product Priorities

Definitions

Source: Online Banking Report, 6/01; definitions for U.S. market

We consider which products are best for online delivery.

The best loan from the lender’s perspective is one that is large, secured, carries a variable rate, is priced at a premium relative to risk, is applied for on the spur of the moment (consequently there’s not a lot of rate shopping), and, most importantly, is paid off on time (perhaps with a late fee or two along the way). Depending on the lender and its balance sheet, sometimes a portfolio product that stays on the books is preferred, other times a loan that is easily sold to fixed income investors is preferred.

In order of importance, here are the five most lucrative online lending opportunities (see Table 1):

1.       Home equity line of credit (second lien)

2.       Mortgage refinance (first lien)

3.       Home equity loan (second lien)

4.       Home equity loan/line hybrids (2nd or 3rd liens)

5.       Overdraft credit line (for checking customers)

From the user’s standpoint, most prefer a loan with a low fixed rate, no fees, a large line size, is secured by their home (if it saves taxes), requires little paperwork, and can easily be renewed.  When interest rates dip, mortgage refinance is a hot area of consumer demand; when rates are higher than historical averages, home equity loans are more desirable. LendingTree’s quarterly volume demonstrates this demand pattern. In Q1 2001, with mortgage rates at their lowest in almost 2 years, LendingTree received 5 mortgage apps for every home equity application. A year earlier, the ratio was 2 mortgage applications per home equity application .