The Online Mortgage Industry

1. 95-731: Business Strategy and Electronic Commerce Homework 1 | 01-25-2000 The Online Mortgage Industry Lisa Bembenick | Naresh Bhaskar | Joe Carlen Chad Carter | Lbujomir Cvetkovic Heinz, CMU | Spring 2000

2. Major Market Players • Government: • Fannie Mae • Freddie Mac • Banks: • Chase Manhattan • PNC • Mellon • Brokerage Firms: • eMortgage • Hotloans • Mortgage Auction • America’s Cashline

3. A Sample Front Page

4. Basic Process Outline: 1 • Government and Banks: • Consumers submit application on line • Government/Banks approve application directly • Consumer receives loan directly through either the Bank or Government institution

5. Basic Process Outline: 2 • Brokerage Firms: • Consumers submit application online • Brokerage firm approves application and connects consumer to lending institution • Consumer receives loan through lending institution

6. A Sample Signup Page

7. THE ONLINE MORTGAGE APPLICATION PROCESS • Process fairly uniform across the larger players: • Complete mandatory information form detailing personal contact, credit, housing purchase, and other relevant information. • However, there are some discrepancies regarding applicant authentication. For example: • E-mortgage performs a comprehensive credit check before offering any valuable information to the client. • MortgageDirect requires valid phone number and then immediately offers menu of potential "best fit" lenders from which applicant may choose.

8. Customer Profile • Who are the customers? • Renters or first-time buyers • Owners looking to refinance • Customers with a loan in process • Owners looking to buy an *additional home • Also, customers can be segmented according to mortgage amount (e.g., customers with mortgages over and under $252 K) * * Source: http://www.mellon.com

9. Attracting Customers • How do they attract customers? • Word of Mouth • Referrals • Media Advertising • Direct Mail • Web Banner Adverts • On Websites where mortgages is not the primary service (e.g., banking), online mortgage service is “bundled” with the main line of business

10. Value-Add Features • Consumer can submit applications to various firms, seek the best rates -- all without having to leave the home • Payment calculator • Car loans • Refinancing

11. Additional Value-Add • Some firms will auction consumers’ loan requests and lenders will bid for business • Other Services • Free Credit Assessment (HotL) • Home value estimate (eM) • Financial planning (PNC) • Reverse mortgages for Seniors (Gvt) • Loans for people with Disabilities (Gvt)

12. Average Mortgage Rates National 1999 average mortgage rates* *Source: http://www.mortgage-net.com/trends/market/

13. Some Sample Prices • 30-year fixed mortgage: • Today’s low rates: 7.89 (MortgageAuction)* • Rate 8.5/ Points 1/8 / APR (PNC) • Rate 8.0 / Points 0.99 / APR 8.152 (Hotloans) • 15-year fixed mortgage: • Today’s low rates: 7.67 (Mortgage Auction)* • Rate 8.0 / Points 3/8/ 8.44 (PNC) • Rate 7.625 / Points 0.99 / 7.862 APR (Hotloans) * Quotes as on 01-23-2000 on http://www.mortgageauction.com

14. Product Trial Inducements • Loans for all credit types(Fairbank Mortgage) • Direct Lender with no upfront application fees and same day pre-approvals (EquityOne Inc ) • Free analysis and consultation (Valley United Mortgage) • Low mortgage rates, great customer service (Security National Mortgage) • No Broker fee or middlemen (e-Mortgage)

15. Repeat Customer Generation • Flexible Adjustable Rate Mortgages (ARM): • This could be fixed for 3,5,7 or 10 years. • Security of a fixed-rate loan; (e-Mortgage) • Submit one application to 250 lenders: • Lenders bid for loan business in a real time auction. (MortgageAuction) • Online ‘Rate Tracker System’ for customers: • Customer chooses his/her desired rate and, once that rate becomes available, the customer is notified immediately. (Hotloans)