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Name-your-own mortgage
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February 23, 2000: 7:07 a.m. ET
Online lenders vie for market share, consumers should be choosy
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - It was mid-December and the word on Wall Street was that interest rates were headed up.
Victor Kelly, a 34-year-old Florida resident with a less-than-perfect credit history, had no time to lose.
"I had really planned to refinance my mortgage from the moment I secured the loan," he said, noting the adjustable rate mortgage (ARM) he'd locked in as a graduate student had climbed to nearly 11 percent in two years. "It was an ARM tied to a balloon. It was borderline criminal, but it was my fault because I didn't educate myself on the process (of purchasing real estate) before I signed the papers."
Kelly, who graduated last summer with a master's degree in social work, waited several months to establish an employment record, and then set the wheels in motion for a badly needed refinancing.
"I called all the local banks and credit unions, even my old lender to see if they were willing to reduce my rate," he said. "I tried all the usual suspects. Then my wife saw an ad for PricelineMortgage, where you could name your own rate."
In a matter of hours, the online service tracked down a lender willing to accept Kelly's 7.8 percent asking rate.
"I'd definitely do it again," Kelly said. "I've already recommended it to a few friends."
Online options
PricelineMortgage is a unit of priceline.com, best known for its name-your-own-price approach to purchasing groceries and airline tickets.
The new home finance service allows consumers to name their own rate and terms for mortgage products, refinancing packages and home equity loans. It was rolled out late last year in several states, including Florida and New York, and should be available nationwide by the end of this quarter.
 "The problem we've seen with other sites is that customers don't know what they are getting," said Ben Ness, Priceline's senior vice president of financial services. "They usually get an estimated closing cost and a quoted rate that are both subject to change. That's how we're different. We gather enough information to tell you exactly what your closing costs will be and we guarantee it. There are no surprises. What you see on our site is what you get."
PricelineMortgage estimates the average customer can save up to $1,000 on closing costs over traditional mortgage lenders.
How it works
Once you've submitted your request to PricelineMortgage, it is sent to several participating lenders.
You'll be notified via e-mail within six business hours whether your rate has been accepted. (A warning: Don't hold your breath if you're looking for a 3 percent loan. Lenders only bite if your request is competitive with, or at least reasonably close to, current rates on the market.)
If your bid is accepted, your rate is immediately locked in and the lender charges your credit card $200 as a "good faith" deposit. That money is applied as a credit on your closing cost.
"You really have to be ready to go because if you're not, they are going to be moving faster than you can," said Kelly, adding all PricelineMortgage shoppers had better be serious before making a bid.
 And by the way, if the lenders do not accept your bid, they have two business days to e-mail you back with a competitive offer. It's up to you to decide whether or not to accept them, and no fee is assessed if you reject the offers.
The alternatives
PricelineMortgage, however, is not the only cyber-game in town.
The competition includes E-Loan (EELN: Research, Estimates), which claims to be the "leading online lender," Lending Tree (TREE: Research, Estimates) (now a Priceline partner), and Mortgage.com (MDCM: Research, Estimates).
All of these sites differ slightly. And all advertise big savings.
Mortgage.com, for example, claims it can find the average homebuyer in the market for a $200,000 loan this week, a 30-year fixed rate of about 7.75 percent. That, according to its online calculator, compares with the national average of 8.14 percent. The savings of $54.26 a month would lower the cost of the total loan by $19,537.
The fine print at the bottom of the calculator reveals the rates are "based on owner-occupied $150,000 loan amount with 20 percent equity in the property and approximately 2.125 points paid."
In today's rate-climbing environment, however, experts say online lenders can be a good way to shop around, since borrower bargaining power tends to climb along with rates as lenders lament the lack of business.
As of Feb. 2, the average rate on a 30-year fixed mortgage was 8.34 percent, up from 6.46 percent in October 1998, according to Bankrate.com. That extra 1.9 percent, it said, means you'll have to scrape up almost $200 more each month to cover the principal and interest payment on a $150,000 loan.
"The downside is that a lot of these Web sites really fail to duplicate what a first class, honest mortgage broker would do for you," said Richard Roll, president of the American Homeowner's Association. "Many people are in a position where they need to hear about all the different alternatives available to them, or they are simply in the dark about how Adjustable Rate Mortgages work vs. a fixed. Simply filling out an application does not address the process of optimizing a customer's individualized needs."
Roll noted that consumers are sometimes better served by taking the necessary steps to qualify for a better loan. Roll is also chief executive officer of RealHome.com, a new interactive virtual community catering to first-time homebuyers and homeowners slated for launch early next month.
For its part, PricelineMortgage does take steps to address that problem, offering live chat loan counselors to answer your questions as you fill out your application.
E-Loan's answer to that is a multiple-choice questionnaire that helps customers determine which loan is right for them.
"Our site provides the content and information that consumers need to do their own research, review the information and make an informed decision at their own pace, without being pressured by sales-agents, who work on commissions," said E-Loan Senior Vice President Cameron King. "I think that's the reason the traditional lending process has been tainted - the sales-agent model."
The application process on E-Loan is free and there's no obligation to buy. The company makes its money by tacking on roughly half a point to the wholesale loans it passes on. King said the brick-and-mortar brokerage community typically tacks on 1 point to 1.5 points.
As with all online e-tailers, you should read a company's privacy and security policies before making any purchase. Consumer Reports suggests you also look for a Trust-e symbol, or a Better Business Bureau Online seal, since both suggest the merchant's business practices have passed an independent audit. You can also try out bizrate.com , which rates e-businesses for consumers.
Taking the plunge
Kelly said online mortgage shopping could make some consumers skittish. But as for him, he's a believer.
"So many people feel more comfortable shaking hands with people and doing this online might spook them, especially since you have to give your credit card number online," he said. "But I thought this was a great way to do business. So many more people have the ability to offer you their services and that to me is the ultimate upside." 
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