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FEATURE Going Digital: Online Lending The Rise of originations becoming increasingly popular for today's borrowers? By Phil Britt W 32 | THE M REPORT hile the housing and overall mortgage market may have struggled, online mortgages have become more popular as a way for borrowers to obtain financing. Although they have not entirely escaped the decline experienced by the market as a whole, online mortgages have declined less than other channels and, as such, are making up a larger percentage of the whole. According to an October 2011 survey of nearly 1,000 mortgage lenders from Mortgagebot LLC, based in Mequon, Wisconsin, about 40 percent of lenders take more than 25 percent of their applications online. "We started about 10 years ago, and now we are seeing more than 700,000 submitted applications per year," said Matt Cotter, Mortgagebot VP and chief sales officer, discussing his firm's online lending service, Mortgage Marvel. "We've seen significant growth both in the number of customers (finan- cial institutions) and a higher percentage of online activity among those customers." Lenders and borrowers alike are going more toward the online channel in an effort to reduce costs for bankers and to easily compare offers for consumers. Cotter also points to the convenience of the online channel. Some 40 percent of applications submitted through Mortgage Marvel are done so after business hours. "That means that 60 percent are submitted during business hours, when the borrower could meet with a banker face-to-face," Cotter says. "More and more borrowers prefer to do business online." Less Pain, More Gain O nline lending is not immune to the overall decline in the mortgage market, but it hasn't fall- en off nearly as much as traditional mortgage lending. All channels are expected to see a sharp decline in mortgages in 2012 as housing prices continue to fall and home equity credit is largely exhausted, but the online channel is likely to suffer the least, says Gary Painter, director of the Lusk Center for Real Estate at the University of Southern California. "It's not so much a change in trend as much as many of the competitors (i.e., Washington Mutual, MetLife, Countrywide) have fallen away." Though online lending's share of the mortgage market has grown, no one has any accurate figures on how much. However, an- nectodal evidence for companies like Mortgagebot and LendingTree confirms the trend. As some lend- ers have closed and others have severely cut back their businesses and real estate values have declined, lenders have limited mortgages to the most creditworthy borrow- ers, who also tend to be the most educated and are the most likely to use online resources throughout their mortgage search and initial ap- plications, according to Painter. The Mortgagebot survey sup- ports that theory. The online applications submitted in 2010 had a median credit score of 757, a median household income of $90,000, a median borrower age of 42, and a median loan-to-value ratio of 70 percent. Painter points out that the borrowers now entering the household formation stage of their lives—a time when many are looking at their first homes—have grown up with the Internet as their preferred choice for shop- ping for products and services. The online sites include customer reviews, an important element in today's trend toward social media. "Online mortgages are more convenient for borrowers; it's a natural evolution of the [mort- gage] business. As mortgage brokers continue to see that it's more convenient for bor- rowers, you will see continued growth," Painter adds, point- ing out consumers first had to become more comfortable with smaller purchases online before becoming comfortable One sector of the mortgage business remains on the uptick in spite of the unpredictable marketplace. Why are web-based