LoanGenie.com Banking on Rise in E-Refinancing

With online firms around him shedding workers and closing up, James Creamer has been adding staff and counting the burgeoning number of visitors to mortgage brokerage Web site LoanGenie.com.

Thanks to the nascent refinancing bonanza spurred by recent interest rate cuts, the 2 1/2-year-old Irvine firm he co-founded and thousands of competitors nationwide are hoping for new life.

The fragmented online mortgage industry suffered along with a host of dot-coms last year. But this year, it is expecting to see as much as a 78% rise in Web site use for home-loan refinancing compared with three years ago, the last refinancing burst, according to TowerGroup consulting firm in Needham, Mass.

But whether LoanGenie and other Internet mortgage brokers can continue to garner enough revenue after the refinancing boom subsides is another matter. Cyberspace is littered with home loan dot-coms that failed.

“This year will clearly separate the winners from the losers,” said Craig Focardi, a TowerGroup analyst.

The refinancing resurgence should be a boon to the entire mortgage industry. For the second time in recent months, the Mortgage Bankers Assn. of America increased its projection for total refinancings this year to $550 billion, second only to the $750 billion three years ago.

Since that last wave, more people are using the Internet and more mortgage brokers have gone online. The number of households using the Internet has increased 63% in three years, and online brokers have grown 15-fold to about 7,500 Web sites, according to industry reports.

With such numbers, few doubt the Internet will play a bigger role in the overall industry.

“We think the refinance boom we’re in will be the catalyst that moves more of the market online for the mortgage industry,” said Daniel Gilbert, chief executive of Quicken Loans in Livonia, Mich., a subsidiary of Intuit.

Compared with three years ago, online brokers are offering more services to customers than simply a list of products and telephone numbers. They are expanding their markets beyond borrowers to try to cover for slower times.

Mortgage Sites Expand Services

LoanGenie and others help borrowers find better rates on homes, credit cards, automobiles and boats. They shop for mortgage rates across the country, and they give consumers such online help as glossaries of mortgage terms and even electronic calculators to help them determine monthly payments and possible savings over current loans.

In the last two months, Creamer said, the number of Web site visitors completing applications has risen to a rate of about 5,000 a month. He has hired five more employees to handle the higher volume, bringing the total staff to 45, and has plans to add 10 more.

The Web site, which takes applications online and then matches borrowers with lenders, has been averaging as many as 150 solid home loan applicants a day. For each one who refinances, LoanGenie.com gets a commission of as much as $1,500 from the loan funder.

LoanGenie and others also are expanding beyond borrowers. In April, the Irvine-based company will launch a new Web site aimed at helping brokers and lenders become more efficient at matching each borrower to one of 75,000 loan programs available nationwide.

Its ApprovalFinder lets brokers early in the process target a loan that fits a client’s needs. Lender borrowing standards are built into the program, allowing brokers to learn whether a borrower will be approved before the paperwork is filed.

At least one large lender has agreed to use the software, and negotiations with several other brokers have reached the final stage, Creamer said. The program’s success is pivotal for the company.

LoanGenie, an independent brokerage launched three years ago with $6,000 each from Creamer, 33, chief executive, and Peter Homer, 32, president, picked up an additional $7.4 million in financing and sunk it into developing ApprovalFinder rather than spending it on media advertising.

“We would have been dot-gone” had the company failed to develop the software, Creamer said.

The company lost $5.4 million last year on $3 million in revenue, but Creamer figures it can break into the black with a $1-million profit this year on revenue that should reach about $15 million.

Tapping into the online refinancing market, LoanGenie and some of its competitors are aggressively advertising their Web sites through banner advertisements on other Web sites, such as those of Yahoo, America Online and BankRate.com.

“Everybody wants to take advantage of lower rates, and Internet customers are looking for the best deals,” Creamer said.

Steep advertising costs are among the perils that have helped derail some high-profile companies, such as failed firms Mortgage.com and LoanUSA, said Richard Beidl, TowerGroup’s research director.

And even though the Internet is looked at as a way to save expenses, online mortgage brokers still face high costs in the back-shop operations needed to process loans. A FleetBoston Robertson Stephens report shows that $1 billion invested over the last five years in mortgage technology has not eliminated overhead costs.

Moreover, most home buyers who use the Internet to find mortgages still want face-to-face conversations with brokers to complete applications. A recent survey by Fannie Mae, one of the nation’s largest mortgage companies, found that while 56% of home buyers used the Internet to learn about mortgages, only 4% ended up applying online for a home loan.

Refinancing through online brokers, however, poses less risk to borrowers than obtaining new mortgages, experts say. The reason is that applicants are simply looking for good rates and are not engrossed in emotional decisions that come with buying a home.

As more consumers move online, brokers will be under greater pressure to improve service and deliver the best prices and products. “Even if people have a long-standing relationship with a broker or banker, they’re going to go to different Web sites and make sure they’re getting the best price,” said Richard Shane, an analyst at FleetBoston Robertson Stephens in San Francisco.

E-Brokerages Seeing a Surge

Two of the nation’s largest online brokerages, which also fund a broad array of consumer loans, said they have recorded brisk business in recent weeks from homeowners looking to refinance.

Quicken Loans said visitors to its Web site number about 30,000 daily and online applications surged 160% in January from a year earlier. The company has added as many as 50 workers monthly, raising employment to 620 people.

At E-Loan, refinancing volume has risen two to three times the level of two months ago, said Joseph Kennedy, president of the Dublin, Calif., company. Kennedy said E-Loan closed about 1,000 refinancings last quarter and expects to surpass that in the first three months this year.

“Someone who refinances today might become a purchase mortgage customer in a year,” he said. “Our overwhelming focus is . . . to build a customer base for the future.”

For now, though, online operators are banking on customers like John Crabill, who jumped on the information highway when he decided to refinance a $450,000 home he purchased six years ago in Gaithersburg, Md.

With a few clicks of his mouse, Crabill found mortgage rates from dozens of lenders nationwide through LoanGenie.

He ended up going to an out-of-state lender for a loan that lowered his interest rate by 1.5 percentage points and his mortgage payment by more than $200 a month. With the savings, he plans to build a new deck.

Crabill, 48, who works for the county’s police department, said he found all the information necessary to make a decision on the Internet.

“Everything was there at our fingertips,” Crabill said. “We didn’t have to leave home or anything.”