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					   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
         Major Market Players

   Government:            Brokerage Firms:
    • Fannie Mae             • eMortgage
                             • Hotloans
    • Freddie Mac
                             • Mortgage Auction
   Banks:                   • America’s Cashline
    • Chase Manhattan
    • PNC
    • Mellon
A Sample Front Page
        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
        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
A Sample Signup Page
     THE ONLINE MORTGAGE
      APPLICATION PROCESS
        Process fairly uniform across the larger players:
1)       Complete mandatory information form detailing
         personal contact, credit, housing purchase, and other
         relevant information.
2)       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.
                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
             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
        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
      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)
        Average Mortgage Rates

National 1999 average mortgage rates*

          Mortgage                      Rate          Points
        30 Year Fixed                   8.26          1.00
        15 Year Fixed                   7.86          1.00
     1 Year Adjustable                  6.56          1.00


*Source: http://www.mortgage-net.com/trends/market/
               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
       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)
        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)

				
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