Instead of visiting a traditional mortgage broker in his hometown, Mike A. Perez, of Salinas, Calif., opted for the online lending experience, joining a small but growing group of borrowers who say the Internet offers them choice, convenience and competitive pricing.
Perez, who refinanced two houses using Quicken Loans last year, swears by the Internet loan system.
"When you're online, everything's at your fingertips," Perez said. "You can look at rates. You can compare different lenders. I learned what's going to come up and what kind of loan to go after — fixed or adjustable."
Perez said he wanted to go with a big company that offered competitive rates.
"I know you want to keep some of the money in the community, but in the end, it's about where the better deal is."
At 24, Perez is ahead of the older demographic that is usually buying mortgages the more traditional way -- face-to-face. He grew up using the Internet and knows to look for the security symbol on Web sites and to avoid sites that appear suspicious or don't have adequate disclosures about privacy.
When Perez had questions about the home-buying process or loans he went to his favorite search engine, www.dogpile.com, and www.msn.com, which led him to dozens of informative sites. Without revealing a single note about his personal financial situation, he embarked on a self-guided education complete with financial calculators and amortization schedules.
Online transactions account for just a small percentage of all mortgages — just about 5.3 percent this year. Online companies, however, are snagging a growing percentage of the business mainly because people like Perez are increasingly comfortable with the Internet. Whether borrowers decide to conduct their transaction online or in person with a traditional lender, the Internet can provide valuable research and helpful financial tools that illuminate the ins and outs of borrowing money.
Not only are most online lenders hosting free and confidential tools, they have 1-800 numbers, chat rooms and people who can respond to e-mails quickly. And, of course, the Internet is free and open for business 24 hours a day. Sites like Quickenloans.com and E-LOAN have easy pre-applications that users can fill out in a couple minutes and request a call back at a particular time.
Although Perez's comfort level with the Internet is high, many of the online tools to figure out the appropriate loan are simple enough to get started even for the amateur. The reality is that online companies learned a long time ago that borrowers need a human at the other end and with most companies; the Internet is just another channel to bring customers to the door.
Margaret D'Arrigo, also of Salinas, Calif., filled out an E-LOAN pre-application and had a callback in 15 minutes from a live sales person. She was pre-approved in 24 hours. She secured a $430,000 loan and closed escrow in 30 days on a lakeside vacation home in Bradley, Calif.
The online experience was actually very human, she said. "I was most hesitant about doing it online without having a face." After the initial contact, however, she conducted most of her transaction via phone and e-mail. "That was slick. It saved me a lot of time."
D'Arrigo's other concern was who would conduct the appraisal. She felt her home was unique in the community and she didn't want to rely on outside appraisers, who might inaccurately reflect the value of the house. E-LOAN let her use her own appraiser. "I was pleasantly surprised," she said.
After playing around with their numbers online with the free and confidential tools, a growing number of people are going ahead and filing online applications. Quicken Loans calls this its "conversion" rate and it's tripled in the past two years.
"People are coming online for information-gathering and empowerment," said Timothy Dennis, customer acquisition manager at Quicken Loans. "People want to know what to expect in the mortgage process." Quicken consumers can look forward to electronic signature capability that will trim days from the process.
The estimated number of online borrowers has also grown steadily. "Most of the growth been in the last year and a half," said Chris Larsen, chief executive officer of E-LOAN.
Compared to the adoption of the automated teller machine, which took about a decade to be used by about a third of the population, in just three years, online lending is has already gained 4 percent to 5 percent of the mortgage borrowing population. "In terms of introducing a new channel, that's pretty good," said senior analyst Craig Focardi of Tower Group. "With the Web, it's a lot easier for people to learn about the process and really demystify it."
About $13.4 billion of loans originated online in 2000, according to Focardi. He expects that number to climb to $110.3 billion in 2002. Refinance and purchase loans that originate online will be a growing percentage of total loans and value $246.3 billion by 2005, he estimates.
"While security and privacy are clearly important issues, even more important is the average consumers' need for a comfort level that a) they're getting the best deal possible and b) there is going to be some kind of financial adviser involved."
In fact, while online lenders tout the efficacy of the Internet, they have pushed accessibility to a live sales force. All online loans at this point still involve person-to-person contact at some point in the sale.
Because getting a mortgage can be a stressful event, several online companies also offer anytime access to updates via the company Web site, e-mail and telephone. Quicken offers automatic voicemail and e-mail updates on the status of a loan.
Consumers going to traditional brick and mortar lenders are also benefiting from the Internet as brokers use the Internet to facilitate application information.
A traditional mortgage broker in Monterey, Calif., Shawn Quinn, president of Monterey Coast Mortgage, dabbled in online lending tools last year, but abandoned them. He's waiting for customer demand to grow and the software to provide more up-to-date service. There are also often so many factors involved in getting the best loan that Quinn says borrowers still get the best deal when they're talking directly with a lender.
"Our expectation was to allow customers to be able to at their leisure fill out loan application and boom — it was there in the office. But we found 90 percent of the time when customers were filling them out on their own they made mistakes and we had to call them up to fill in the holes," Quinn said. "When we meet with a customer or talk to them over the phone we can do it in 20 minutes."
The other thing Quinn found is that most consumers don't get real estate loans that often and are easily overwhelmed by the process. Sometimes they shouldn't refinance at all.
"Even though it can lower their interest rate, it isn't the best thing always to do," he said. "I ask them to do a spreadsheet and see how long it is to recoup the costs. My concern is that online people will miss out on some of those kinds of subtleties that will make a big difference in their life. There is a percent of the population that understands the process enough and can do just fine online but I think it's a small percentage."
Whether or not a consumer decides to apply for a mortgage online, the Internet has immediate benefits for consumers throughout other aspects of the lending process.
The Internet allows them to shop for the best program as well as receive loan documents such as disclosure forms prior to the closing. People who don't want to apply online should still look for lenders who have an active Internet e-presence and are using technology to originate loans and close them just as fast as an online lender, Focardi said.
The fact is that "while online lenders are increasingly doing a good job of helping consumers navigate those issues, their lack of local market knowledge and presence on occasion can make an online mortgage-lending process more nerve-racking for the uninitiated to the borrowing process."
"The Web is a great way for consumers to be empowered with better information instead of simply relying on humans who are often too busy to meet consumers' needs in a timely fashion," Focardi said. "A lot of telephone tag on some basic issues is eliminated now because of the Internet."
That said, Focardi noted that online lending "is best for consumers that are more familiar with technology and somewhat familiar with the lending process. There are a lot of decisions that need to be made during the process - lender, product rate, selecting a close date, dealing with the application during an underwriting process — that if people are uncomfortable with an Internet lender who may be 1,000 miles away, they may want the comfort of a local presence of some kind of retail branch they ought to wait for the entire online process."
Jennifer Pittman is a freelance writer and regular contributor to The Monterey County Herald. E-mail her at Jpitt4@aol.com.
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