Online Lenders Need Eyeballs to Succeed

Tough Lending Times... A couple of years ago, conventional wisdom predicted that residential lending would largely move online, threatening loan brokers. So VCs and investors poured hundreds of millions of dollars into new online lenders. But over the past six months many of these firms have come crashing down. Mortgage.com burned through $60 million between August 1999 and November 2000, when it shut down. According to The Industry Standard (Nov 20, 2000), iOwn.com www.iown.com laid off most of its staff and is seeking a buyer. E-Loan, which raised $60 million in June 1999 and saw its stock price rocket to $37 on the first day of trading, closed unchanged last Friday at $1.25.

As The Industry Standard article says, "The fact that buying a mortgage online isn't fundamentally different from buying one over the phone has been a challenge ... The efficiency offered by the Internet isn't compelling enough for mortgage shoppers to change." ... And that turns out to be equally true for online commercial lending. Oh-oh, isn't that pretty much true for all real estate transactions? ... So over the last few months we've seen a number of players exit the business or change their business models. Best Mortgage Advisors, MortgageSelector.com and Redbricks all appear to have gone off the air. CapitalThinking no longer originates loans, but sells its online processing technology to lenders like J.P. Morgan Mortgage Capital and PNC Real Estate Finance.

Again, The Industry Standard: "... firms have been unable to acquire customers online on an economic basis,'' says analyst Jim Marks of CS First Boston. "For this to really work, it will take partnerships with the owners of the eyeballs." That's why LoopLender fits so well into LoopNet's heavily trafficked web site. Mark McLaughlin, VP of Sales, reports that LoopLender has closed $38 million of loans in the past 60 days. Meanwhile online lender MortgageRamp announced last week that it had secured $50 million of second-round financing. As their web site boldly proclaims: "...MortgageRamp was created to change the way commercial real estate finance transactions are performed. To do this, we have combined revolutionary technology platforms with good old-fashioned face-to-face relationships. Technology, speed, and people: it’s the formula that is changing the commercial real estate finance landscape… forever." ... Wow, that's a pretty big dream.

--Peter Pike