Home Equity Biz Resisting Internet

TowerGroup study says just 10% of HELs originated online

June 25, 2004

By PATRICK CROWLEY

A new study by the TowerGroup, a Boston-based market research firm, found that just under 10 percent of home equity loans closed in 2003 originated as online applications.

“While TowerGroup expects that number of grow to 12.7% in 2004, even the most accomplished lenders will be hard pressed to exceed the 20% mark anytime in the next three to five years,” the firm said in a written statement.

For online home equity lending to grow, borrowers need to be more trusting and lenders need to be more aggressive in their marketing, said Chris Pratt, a TowerGroup senior analyst and author of the report, “Driving Home Equity Customers Online: Are we Focused on the Right Issue?”

Many consumers think the “www” in Web page addresses stands for “wild, wild west,” Pratt said in an interview.

“Consumers are concerned about sending personal information and money online,” Pratt said. “They aren’t sure where it goes.”

They are also concerned about security and identity theft, she said.

Research also shows that people “like to go talk to the people in the mortgage office or bank branch,” Pratt said.

But lenders also need to do a better job delivering on the Internet’s perceived promise of speed and efficiency.

“Many lenders have only automated the customer-facing technology and are still manually performing much of the application process,” Pratt wrote in her report, “thus leaving customer expectations of a streamlined process unfulfilled.”

Pratt found that “the largest problem that lenders have with home equity lines is that customers don’t use them.”

She suggests home equity lenders should follow the lead of credit card companies and use direct mail to move consumer traffic to the Internet.

“Credit card companies found a dramatic increase in the number of responses to direct mail offers when they provided an online acceptance option,” Pratt said in the report.

“Similarly, home equity lenders who emphasize an online response should see much better returns from marketing efforts that those that offer only call center or written response options,” she said.

Lenders need to also offer competitive pricing, a convenient online application process and quick answers, Pratt said.

“Lenders have to understand what it takes to get the customer” to borrow online, she said.

A study done by Change Sciences Group of Irvington, N.Y., also a market research firm, ranked online lenders for ease-of-use when it comes to home equity borrowing.

E-LOAN topped the list followed by E*TRADE Bank, Wells Fargo and National City Bank, according to a published version of the report.

The sites were ranked for ease of use, details of information provided and streamlining of the lending process.

Just this week, E*TRADE Bank launched EquityExpress, which the company described in a press release as “a new home equity program that enables customers to secure a home equity loan or line of credit in as little as 24 hours and to obtain their loan funds in as little as one week.”

“Our goal is to move as fast as the customer wants to move,” Rob Snow, vice president of retail lending for E*TRADE, said in an interview.

“We’re making a commitment to get you approved and get the (loan) documents in the mail within 24 hours,” Snow said.

“It is clear that a lot of customers check rates and do some research online, but they haven’t really made the leap to buy online,” Snow said.

E*TRADE is convinced customers want “speed and value” and will eventually grow more comfortable and confident in online borrowing, Snow said.

“It’s absolutely moving that way,” he said. “Once (borrowers) start to realize how fast and how easily they can borrow on the Internet…the market will move that way pretty quickly.”

Patrick Crowley is a political reporter and columnist and former business writer for The Cincinnati Enquirer. Email Patrick at: pcrowley@enquirer.com