In thinking about what to write about online lending, it seemed to me that the more interesting focus is to look beyond just online retail origination. I believe we should consider the big picture of how our entire industry uses the Web, to examine where our journey as an industry has brought us, where we're going and what we all need to do to take full advantage of this seemingly limitless vehicle of commerce.
I think it's important to consider the Internet not as a stand-alone topic, but as one of the cords inextricably intertwined with industry trends overall. After all, our industry's use of the Web has helped shape market trends and remains driven by them in its evolution.
In this column, I'd like to follow two lines of thought: 1) the realization that the marketplace--once again guided by Adam Smith's "invisible hand"--has driven the realities of how the various constituencies in our industry use the Web (as opposed to conceived and imposed usages); and 2) explore how specific market trends and conditions in late 2006 and into 2007 are shaping the role of the Web in the mortgage industry, and what opportunities these trends and conditions may create.
The eclectic, evolving role of the Internet
In true free-market fashion, nobody can dictate what the marketplace will do when it comes to how the Web is used in the mortgage industry; the users in the marketplace decide this. Thus, some industry uses of the Web have grown to become almost standard (i.e. originators pricing and locking loans on wholesalers' sites, mortgage brokers using automated underwriting [AU] engines and shopping for the best deals with investors, consumers enthusiastically using the Web to learn about product options and search for the lowest rates), while others--such as online retail origination--have not yet grown as fast as many had predicted.
The job for all of us in the mortgage industry is to tack to the winds of the marketplace--of our respective customers. We need to adjust our offerings and strategies to serve the needs and opportunities being dictated by the market.
Current industry trends and the Web
Here's my big-picture take: The higher rates of earlier 2006 are flattening and could even drift downward again if the Fed lowers rates in early 2007 as some are predicting. This may counter weakness in the real estate marketplace. Meanwhile, there is a massive volume of interest-only adjustable-rate mortgages (ARMs) that are scheduled for first reset in the near future, creating demand and opportunity for refinancing out of those existing loans and into new ones.
And not to be forgotten are rates that have adjusted upward on the innumerable home-equity lines of credit (HELOCs) that have been taken out in the past two to five years. These factors add up to a potentially significant increase in refinances throughout 2007.
This potentially increased refinance volume will create a greater need for speed and efficiency at all levels. That elevates the value and importance of online automation at all steps in the mortgage lending process, including business-to-business (B2B) areas such as processing, underwriting, funding and secondary-market sales. At the same time, an accelerating shift to refinance versus purchase loans should drive more consumers to the Web, as consumers have, understandably, proven more willing to do refinances online than purchase transactions.
Further, higher overall consumer activity and engagement may lead to more use of the Web for research, meaning more "hits" or visits to online lending sites. This creates an opportunity to communicate with, market to and convert visiting prospects.
In short, I feel that in some ways the lower-volume environment of 2006 actually made automation's speed and efficiency less important relative to price (fewer loans to process, more capacity to handle the volume). …