7 minute read
LEGAL
By Jonathan Flaws
online Nailing mortgages
Unthinkable way back when, Jonathan Flaws writes how mortgages online can be effective today.
While cleaning out my
bookshelves recently, I came across an old book from 1992 entitled Internet for Dummies. Back then, the internet was still in its infancy. It was not clear how it would develop and its future usefulness.
Looking forward, the authors John R Levine, Carol Baroudi and Margaret Levine Young suggested the internet would be most useful for emails and instant communication. They didn’t see the internet taking off as a commercial medium to enhance trade or business. You would use it to talk to people but really to buy anything.
Looking back, the authors could not have been more wrong. The internet has exploded as a means of connecting people for commerce (Amazon, eBay and Trade Me); for social interaction (Facebook and Instagram); for access to information (Google and Bing) and for connecting people for personal relationships through online dating websites.
It has become invaluable in the mortgage business for communication with existing clients and for back office communication between brokers and lenders and lawyers.
But it doesn’t seem as if it has been much use yet in selling mortgages. It can be useful for lead generation but it can’t seem to replace the human interaction required to sell a mortgage.
FORMING RELATIONSHIP
A mortgage is often cited as one of the biggest financial commitments in which a person can enter. You could also describe forming a long-term personal relationship and finding a partner as a large financial commitment, particularly if you have to unwind it after two or more years together.
The dating industry has found a way to use the web to create and consummate successful relationships so why can’t the mortgage industry?
The Credit Contracts and Consumer Finance Act 2003 assumes that lenders are likely to use the internet as a shop window. In the responsible lending section it requires lenders who have an internet site to display prominently the terms of any standard contracts as well as information regarding the costs of borrowing.
NET SHOPPING
The CCCFA assumes that consumers will use the net to shop around for credit. Really? Will they
actually shop on the net to show how effective the net is in capturing them when they do?
Most purchases on the internet require you to use your credit card. For purchases at that level, the net is a very convenient and useful way to shop. It’s great for online retailers because it reduces overheads. It’s also great for impulse buying because once you clicked submit it is hard to retract and change your mind.
For products not needing the buyer to make an informed decision to buy – product which can sell solely by emotion or need – the internet is great way to do business. But a mortgage is nothing of the kind and requires a significant amount of effort on the part of the borrower and the lender before the decision to buy is made.
Once the decision is made and the loan applied for and approved, a considerable amount of time and effort are involved before the knot is tied and the mortgage marriage consummated.
So how effective can the net be in assisting the mortgage process? Provided you understand its limitations and work with the internet, I suspect it can be extremely effective. But you need the right tools and the right approach and the marriage of borrower and lender still requires a matchmaker and a vicar.
Some years ago, a website was set up in New Zealand to provide borrowers with an opportunity for a great mortgage deal over the net through a process similar to an auction. The concept assumed that borrowers would fill in some forms, provide some information and make this available for lenders to them bid for their business.
But most borrowers find it hard to do all of this on their own. Even if they are able to complete the application and provide sufficient information, they may not be asking for the right loans or putting the information in the best form to make them seem attractive. Very few lenders are likely to take an online application from a prospective borrower at face value. I don’t know how many leads were generated by the website and I suspect not a lot of mortgages were written as a result. That particular website doesn’t exist on the net anymore.
FINDING PERFECT LOAN
Perhaps the biggest problem is that a mortgage really is one of the biggest financial commitments a person is likely to make and without the assistance of an experienced professional it can be hard finding the perfect loan.
It is apparently not so hard to find the perfect partner online. Apparently the percentage of marriages that come from online dating has increased. Google “What percentage of marriages come from online dating?” and you
will find claims that over 30% of all marriage partners are now found online.
It is also claimed by some that such marriages are more likely to last longer and be happier because the parties have had the chance to meet people that are more likely to be compatible with them.
Fortunately, you can obtain a mortgage without having to marry your banker and make promises to stick with them in sickness or in health or until death do you part. If online dating sites are so successful, can the factors making them successful also be replicated to marry borrowers with lenders?
EMOTION AND NEED
I’m not sure that emotion and need are necessarily two separate items but certainly, they both attract people to use online dating. Property websites such as Trade Me and realestate.co.nz also attract a large number of hits through emotion and need and I suspect that most lenders have sophisticated systems to make sure online searchers find their websites and then stick. I only need to use the word “mortgages” in a search once and then I am bombarded for days with promoted ads for lenders’ websites.
We all know what we are looking for in a partner. We think we know what we are looking for in a mortgage.
FICTIONAL INFORMATION
Dating sites first gather information about you and your objectives and aspirations for finding a partner, which is no different really to a mortgage. The amount of fictional information or hopeful information is probably as much if not more on the dating sites.
The dating sites presumably apply complex social algorithms to categorise each participant according to the stated characteristics and then match them against others to find a list of prospective partners.
A successful mortgage marriage website is likely to do the same thing. Collect high level information about the borrowers’ requirements and objectives and high level information to ensure that the borrowers are likely to be able to make payments under the mortgages without suffering substantial hardship.
All of this must be high level because at this stage it cannot be verified and must be taken at face value. Section 9(3) of the CCCFA requires a lender to make reasonable enquiries about these matters. The high level enquiries that a mortgage website will make cannot satisfy this requirement and is really just the first step down this path.
Like the dating sites, it will apply complex algorithms and collect a set of potential lenders that are likely meet the objectives and requirements of the potential borrower and be within their financial range.
MATCHMAKING UP
to this point, the interaction has just been electronic and the process between dating and finding a mortgage has been similar. Now the process becomes more complex and what happens at this stage determines the success or failure of the match.
The dating sites generally now leave you on your own to make contact, develop a relationship through online chatting and eventually meet your perfect match.
Hopefully, the person with whom you have been cultivating a relationship is real and not a catfish, the name now given to a person who creates a fake online personal profile and persona.
A successful mortgage website, however, cannot afford to leave the prospective borrower on their own. If it does then it’s just a storefront for window shoppers – a spawning ground for catfish.
The site needs to introduce the borrower to the matchmaker – a mortgage broker who can then step in and assist the prospective borrower to take the next more serious steps. At this stage, the personal interaction becomes important and the borrower is guided and helped through the process of selecting lenders to approach for loans.
The Lender Responsibility Principles as well as the AML.CFT requirements make the introduction of a matchmaker a necessary part of any online mortgage site.
Mortgage sites that follow this path exist overseas. You only need to look to Australia to check out how successful they can be in generating leads and keeping catfish out of the net. ✚
