Online Lending: The New Reality

Groundbreaking New Market Research Profi ling the Adoption of OnlineMortgage-Lending Technology by American Banks and Credit Unions

The results of an in-depth survey of American banks and credit unions conducted by Lieberman Research Group

Online Lending: The New Reality

Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC2

Table of ContentsExecutive Overview First-ever survey of online lending technology at banks and credit unions . . . . . . . . . . . 3

Survey reveals: Significant technological change is underway . . . . . . . . . . . . . . . . . . . . . 3

Key Survey Findings The Internet is the fastest-growing mortgage-application channel . . . . . . . . . . . . . . . . . . 4

Lender adoption of smart, online mortgage-application technology is inevitable . . . . . . . 6

Lenders can provide a superior borrower experience with a smart, online application . . 8

Channel integration is “very important” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The real reasons why some lenders do not originate online . . . . . . . . . . . . . . . . . . . . . 10

Conclusion Now is the time for lenders to act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

AppendixSurvey background, methodology, and terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

AboutLieberman Research Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Mortgagebot LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Lieberman Research Group98 Cuttermill Road Great Neck, New York, 11021

Sponsored by Mortgagebot LLC1000 Donges Bay Road, Suite 200 Mequon, Wisconsin 53092

Published August 2010

Copyright 2010 by Mortgagebot LLC . All rights reserved .Mortgagebot, Mortgagebot PowerSite, and Mortgage Marvel are registered trademarks of Mortgagebot LLC .www.Mortgagebot.com

Reproduction is strictly prohibited without the express written permission of Mortgagebot LLC .For reproduction rights, usage information, and reprint information, please e-mail your request to:[email protected].

All data and charts are from Lieberman Research Group (LRG) and are based on a detailedLRG telephone survey of mortgage decision-makers at 330 banks and credit unions .All opinions, key considerations, and conclusions reflect the judgment of Mortgagebot LLC .

Survey reveals: A significant technological change is underway

The survey reveals that a major transition is underway in the adoption of online mortgage-lending technology. Key survey findings include:

• Lenders see their adoption of smart, online mortgage-application technology as inevitable. For example, 71 percent of bank executives believe that they will have to offer a smart, online mortgage application in the future.

• Mortgage application volume from the online channel will grow dramatically. By 2013, banks and credit unions expect mortgage volume through the online channel will grow by as much as 225 percent.

• The Internet enables lenders to provide improved, personalized service. Of lenders that have adopted or are planning to adopt smart, online, consumer-direct lending technology, up to 61 percent say their primary reason for doing so is to serve borrowers better.

Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC 3

Executive OverviewIn less than two decades, the Internet has grown from a novelty for computer buffs into a key player on the stage of global commerce. But in the world of mortgage origination, some lenders have embraced the Internet while others have shied away. Until now, no one has accurately determined the reasons why some lenders are enthusiastic proponents of the World Wide Web and some are not.

The sponsor of this unique survey is Mortgagebot LLC, a company that since 1997 has provided bank and credit-union mortgage lenders with Internet-based technology for automating the mortgage application, pricing, approval, and disclosure process through every mortgage business channel: Internet, branch, call center, or loan officer . And with over 1,000 banks and credit unions as clients, Mortgagebot is the market leader .

But there are many more banks and credit unions that do mortgage lending in the United States than just the 1,000 clients of Mortgagebot . Mortgagebot’s objective in sponsoring the survey was to learn the answers to some important questions, including:

• To what extent do non-Mortgagebot banks and credit unions use the online channel in their mortgage-lending efforts?

• What percentage of mortgage-lending banks and credit unions provide their borrowers with the option of applying for a mortgage online, through their Web sites? And of the organizations that enable consumers to apply through the online channel, what kind of technology is behind their online applications?

• What business challenges have driven lenders to want to implement an online mortgage-application solution?

• If lenders do not offer an online mortgage application, what is holding them back?

After a careful vendor review, Mortgagebot selected Lieberman Research Group, a nationally recognized market-research firm, to conduct a detailed telephone survey from a database of 2,391 banks and credit unions nationwide that: a) Do mortgage lending; b) Have assets of over $100 million; and c) Are not Mortgagebot clients .

The 330 financial institutions that Lieberman actually surveyed comprise a solid statistical sample from which definitive conclusions can be reached . In fact, the survey results can be considered statistically significant at a 95 percent confidence level (plus or minus five percent) .

It is important to note that this may be the first survey of its kind to be conducted by an independent research firm; and this document provides an overview of the survey results . Refer to the Appendix for more survey background; and refer to the About section for more information about Lieberman Research Group and Mortgagebot .

Figure 1: Application volume by mortgage point-of-sale channel, 2010 vs. 2013. Overall mortgage-application volume from the online, self-service channel is expected to increase 157 percent by 2013 [all respondents].

Figure 2: Bank application volume by mortgage POS channel, 2010 vs. 2013. Mortgage-application volume of banks from the online, self-service channel is expected to increase 225 percent by 2013 [bank respondents].

4 Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC

Key Survey FindingsThe Internet is the fastest-growing mortgage-application channelNot long ago, most people applied for a mortgage loan by meeting with a loan officer. But while some consumers still prefer that kind of personal attention, in the area of mortgage-applications it is no longer a “single-channel” world.

Today’s borrowers have many other mortgage channels open to

them . For example, they can use a lender’s Web site to apply online .

They can apply by phone through a call center . Or they can meet

in person with a branch-based service associate .

But regardless of which channel or channels they use to apply

for a mortgage loan, research has confirmed that today’s borrowers

want the same fast and efficient application experience1 . And

competitive mortgage lenders understand that they must deploy

efficient, integrated automation across multiple channels to provide

the service borrowers expect .

That trend is clearly reflected in the survey results, which indicate

that the online, “self-serve” mortgage channel is expected to grow

faster than any other channel through 2013 . In fact, survey

respondents say they expect their overall online loan volume

to increase by 157 percent (Figure 1):

• Online application volume at surveyed banks is expected to triple .

While many banks have not fully embraced the idea of providing

borrowers with a “smart,” interactive, online mortgage-application

option, a new trend is evolving . By 2013, banks expect their online

application volume to grow from 4 to 13 percent of total volume—a

225 percent increase (Figure 2) .

Online self-service

Dedicated call center

Mail

Other

Third party brokeror agent

Branch service personnel

20%0% 40% 60% 80%

71%62%

Loan officers

12%13%

20132010

13%4%

1%1%

6%6%

4%4%

2%1%

FIGURE 2FIGURE 1

Online self-service


Mail

Other



20%0% 40% 60% 80%

67%57%Loan officers

12%13%

20132010

18%7%

1%2%

5%7%

4%4%

2%1%

Key Business Considerations for Lenders

How effective is your direct-to-consumer Internet mortgage presence? Even those who have not yet implemented online-lending technology believe that the online, self-serve mortgage channel will grow dramatically in the next three years. How prepared are you to enable borrowers to apply for mortgages online?

How productive and efficient are your loan officers? Many lenders expect the loan-officer channel to continue generating a significant portion of their loan applications. Are your loan officers equipped with the automated tools they need to be as efficient and productive as possible?

Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC 5

• Online application volume at surveyed credit unions will climb to

nearly one-third of total volume . Credit unions already use online

technology to take a full one-fifth of their mortgage applications;

but by 2013, they expect their online applications to grow from

20 percent to 31 percent of total volume—a 55 percent increase

(Figure 3) .

It is important to note that although the online channel is expected

to show impressive gains in volume, lenders also expect that their

loan-officer channel will continue to generate notable application

volume .

Despite the expected decline in loan-officer volume as the online

channel grows, lenders still expect loan officers to take over half

(57 percent) of all mortgage applications by 2013 (Figure 1) .

Application volume from mail, call centers, or broker relationships

is currently minimal and is expected to remain so through 2013 .

A regional dynamic also appears to be at work, with lenders in

the western United States expecting huge gains in online mortgage

volume compared to those in the south, midwest, and northeast

(Figure 4) .

But there is another significant perspective of the online channel

that must be considered: The experience of lenders that have

already adopted online application technology . Based on its practice

of continually monitoring the actual application volumes of its

nationwide client base, survey sponsor Mortgagebot has discovered

that when lenders implement a smart, interactive, online mortgage

application, their online volume often increases in ways they did

not expect .

For example, in 2009 about 40 percent of Mortgagebot clients

were already taking more than 25 percent of their applications

via the online channel2 .

Figure 3: Credit-union application volume by POS channel, 2010 vs. 2013. Mortgage-application volume of credit unions from the online, self-service channel is expected to increase 55 percent by 2013 [credit-union respondents].

Figure 4: Online channel adoption by region, 2010 vs. 2013. Western lenders expect to take more than one-fourth of their mortgage applications via the online channel in 2013 [all respondents].

Online self-service


Mail

Other



20%0% 40% 60%

55%44%

Loan officers

12%

20%31%

10%

20132010

3%2%

4%8%

4%5%

1%1%

FIGURE 3

South

West

Midwest

10%0% 20% 30%

9%18%

Northeast

17%

6%16%

9%

2013201027%

FIGURE 4

9%

Not too long ago, telephone-based mortgage applications were considered a high-tech borrower convenience. But as the industry advances deeper into the Internet Age, the days of “apply by phone or mail” are drawing to a close3.

In response to borrower demand, the online technology that banks

and credit unions are increasingly implementing is the intelligent,

interactive, fully transactional (e .g ., “smart”), online mortgage-

application solution (refer to the Appendix for the definition

of a smart, online mortgage application that was provided to

survey respondents) .

For example, among the banks surveyed, seven out of ten

(71 percent) said they “envision a time in the future when they

will need to” provide borrowers with a smart, online mortgage

application (Figure 5) .

Yet while they place value on smart, online mortgage-application

solutions, the lenders surveyed cannot be considered “early

adopters” of the technology, which was introduced by Mortgagebot

in 1997 . As shown in Figure 6, less than one in five lenders

(18 percent) surveyed say they offer their borrowers a “smart”

mortgage application; and four out of ten (39 percent) provide

no Web-based mortgage-application capability at all . The remaining

lenders provide borrowers with:

• A basic, non-interactive HTML-based “1003” application form that

borrowers can complete online (24 percent of respondents); or

• A PDF-type of 1003 form that borrowers must download, print,

complete in pen, and mail or ship back to the lender

(32 percent of respondents) .

It is important to note that both the HTML- and the PDF-based

methods have several serious limitations . First, they require

borrowers to complete every field on the mortgage-application form,

regardless of the borrower’s personal situation—a cumbersome and

time-consuming process .

Second, PDF-based applications require lenders to manually re-enter

application data into their loan origination system (LOS) . Such

inefficiency increases per-loan costs and slows the lending process .

Figure 5: Banks’ projected adoption of smart, online mortgage-application technology. The majority of banks foresee themselves offering smart, online mortgage-application technology.

Figure 6: Online application technology that lenders currently provide. Only 18 percent of lenders provide borrowers with a smart, interactive, online mortgage application. Four in ten (39 percent) provide no online mortgage application of any kind [all respondents]. Note: Numbers do not total 100 percent because some lenders offer multiple application options.


Lender adoption of smart, online mortgage-application technology is inevitable

FIGURE 6

Enable borrowers to apply online using an

interactive, “smart” application that we

license

None of the above

Provide a simple web-based mortgage

application that borrowers can complete online

10%0% 20% 30% 40% 50%

32%Provide a PDF-based application form that

borrowers can download and complete

24%

18%

39%

FIGURE 5

Not sure:15%

No, will not offer:

14%

Yes, will offer in future:

71%

No, will not offer:

14%

Finally, neither PDF- nor HTML-based application forms enable the lender to offer automated pricing, approvals, or disclosures—which further slows the lending process and decreases the level of service the lender can provide .

Good news: Despite their current lack of support for smart application technology, the “future envisioning” that the 71 percent of respondents noted in Figure 5 is apparently more than just talk .

Almost half of the surveyed lenders (46 percent) said they are now evaluating or planning to evaluate smart, online mortgage-application technology . And of those that are or are planning to evaluate solutions, nearly two-thirds (63 percent) say they intend to license a solution before 2012 (Figure 7) .

Fortunately, the decision to implement a smart application solution is not one that lenders normally end up regretting .

Mortgagebot’s experience indicates that the overall mortgage volume of a lender with a properly implemented and supported online channel often increases as the new channel takes more applications—and as a result, lenders begin to ask themselves why they waited so long to adopt the technology .

The survey also reveals that credit unions seem to be more tech-savvy than their banking brethren regarding online lending technology .

More than eight of ten credit unions surveyed (82 percent) said they are “very” or “somewhat familiar” with smart, online mortgage-application technology, whereas less than two-thirds (61 percent) of banks claimed such familiarity (Figure 8) .


How well is your mortgage-application technology keeping pace with the times? Today’s lenders are increasingly using their Web sites to provide self-serve, online borrowers with smart, interactive mortgage-application capabilities. How close is your organization to implementing such a solution?

How competitive is your mortgage business? In an age when borrowers demand online convenience, how much mortgage business could your organization be losing to competitors that have already implemented a smart, online mortgage-application solution?


Figure 8: Familiarity with smart, online application technology by market sector. Credit unions appear to be more familiar with smart, online mortgage-application technology than banks—more than 8 of 10 credit unions (82 percent) say they are “somewhat familiar” or “very familiar” with the technology [all respondents].

Figure 7: Percentage of lenders that are evaluating smart, online application technology. 151 of the 330 lenders surveyed (46 percent) are currently evaluating or planning to evaluate smart, online application technology. Almost two-thirds (63 percent) will finish evaluations by 2012 [all respondents].

FIGURE 8

Credit UnionsBanks

Very familiar Heard it mentioned

Not sureNot heard about it

Somewhat familiar

38%

40%

44%

21%

8%30%

8% 9%1%1%

0%

80%

90%

100%

70%

60%

50%

10%

30%

20%

40%13 to 24 months

More than 24 months

Not sure

7 to 12 months

20%0% 40% 60% 80%

12%0 to 6 months

20%

31%

21%

17%

63% will finish evaluations by

2012}FIGURE 7

Traditional thinking sometimes views Internet-based technology as a poor substitute for personal service. But lenders that have embraced online lending think differently.

Lenders can provide a superior borrower experience with a smart, online application

Among the 131 lenders surveyed that already offer or are planning to offer borrowers a smart, online mortgage application, more than half of them (52 percent)—and nearly two-thirds of those with assets of more than $500 million (61 percent)—say their primary reason for doing so is to better “serve borrowers” (Figure 9) . The need to improve efficiency came in a distant second, followed by a desire to prepare for the future .

Smaller lenders have a slightly different market focus than larger lenders: To a greater extent than larger organizations, smaller


How effectively are you reaching online borrowers? Modern mortgage shoppers are accustomed to the speed and convenience of online tax-preparation and travel-reservation services, so they turn to the Internet first. How well does your mortgage Web site satisfy the expectations of online borrowers?

How competitive is your mortgage-application technology? The survey reveals that banks and credit unions increasingly perceive online technology as an important way to meet borrower needs. To what extent do you see smart, online mortgage-application technology playing a key role in your service-excellence equation?

lenders cite the desire to increase volume and compete more effectively as key reasons for adopting smart, online technology .

The strong service focus of both larger and smaller lenders that favor smart, online application technology shows that they understand a vital new trend: Today’s borrowers prefer the Internet as a delivery channel for financial services, including mortgages . Lenders that are fully engaged with their borrowers realize that to compete in 2010 and beyond, they must meet borrowers at their preferred point of sale .

In an increasingly Web-based world, the Internet is not only the fastest-growing delivery channel for mortgage origination—it is the channel that consumers turn to first . That preference is well documented, as Deloitte Consulting verified with its 2008 study, “The Silver Lining in Lending .” Deloitte researchers found that about seven out of ten (70 percent) of consumers shop for mortgage loans on the Internet1 . The same Deloitte study also found that three-fourths (73 percent) of all online mortgage applicants report that applying online is more convenient than using traditional methods1 .

More recently, a 2010 survey conducted by the Internet Strategy Consortium (a research arm of the Wash ., DC-based consulting firm Callahan & Associates) also confirms that consumers prefer the Internet as a delivery channel for loan products . The ISC survey found that well over half (55 percent) of online credit-union members who are planning to apply for a mortgage in the next year prefer to apply online3 .

Figure 9: Key reasons for offering a smart, online mortgage-application solution. The number-one motivating factor behind organizations wanting to implement smart, online application technology is to provide better borrower service [respondents that offer the technology; aided responses].


FIGURE 9

Wave of the future

Increase volume

Competitive reasons

Faster decisions

Compliance

Other

Want this channel

Efficiency

20% 30%10%0% 40% 50% 60% 70%

Serve borrowers

61%52%

18%15%

15%6%

19%20%

11%6%

10%6%

2%5%

4%

16%8%

2%

Over $500 million in assets (49 lenders)$100 to $500 million in assets (82 lenders)

Here is what respondents were asked: There’s a growing trend in the mortgage industry; it’s called channel integration, in which a lender implements a single point-of-sale software solution to automate, streamline, and integrate every mortgage-application channel. For example, this technology enables a borrower to start an application in one channel (such as a Web site) and finish the same application over the phone—or in-person with a loan officer. On a scale of 1 to 10, how important do you feel channel integration will be to your organization within the next three years?

The survey reveals that a significant number of banks and credit unions believe channel integration is a significant trend . However, more credit unions (56 percent) than banks (23 percent) believe that integrated point-of-sale (IPOS) mortgage automation will play a “very important” or “extremely important” role in their mortgage businesses (Figure 10) .

Today’s borrowers expect and demand the same fast and convenient application experience whether they apply for a mortgage through a lender’s Web site, call center, branch staff, or loan officers .

And according to leading industry consultants, lenders that deliver that kind of superior borrower experience are gaining real benefits—such as pricing consistency, improved internal efficiency, and increased consumer loyalty .

Terence Roche, a principal at the consulting firm of Cornerstone Advisors, says that when financial institutions provide “channel choice,” consumers pay them back with increased loyalty . Roche says consumers “who use multiple channels (physical, phone, Internet, mobile) stay with you .” He notes that when borrowers “are as happy with the experience provided by a second channel as they are with that of their primary channel,” they “stick around4 . ”


How integrated are your mortgage point-of-sale channels? Industry experts agree that mortgage POS channel integration is a significant technological advance—and lenders are already using it to deliver a superior borrower experience, reduce costs, provide consistent and accurate pricing, and compete more effectively. What benefits could your organization gain by integrating your mortgage channels?

How profitable is your relationship with your borrowers? Multi-channel service helps increase client loyalty, which provides you with significant cross-selling opportunities. To what extent could you increase client profitability by providing a superior, consistent, and fully integrated borrower experience?

Part of the survey included asking lenders about the level of importance they place on a relatively new industry trend: Using a single technology solution to integrate multiple mortgage point-of-sale (POS) channels.

Channel integration is “very important”


FIGURE 10

Credit unionsBanks

56%

23%

0%

60%

50%

10%

30%

20%

40%

Figure 10: Lenders that view mortgage POS channel integration as “very” or “extremely” important. Credit unions place significantly greater importance than do banks on the concept of integrating all mortgage POS channels under a single technology platform [by market sector; all respondents].

Figure 11: Key barriers to adopting smart, online mortgage-application technology, by asset size. The top three reasons cited by lenders as “critically important” in their decision to not offer borrowers a smart, online mortgage application are regulatory, security and cost issues [aided responses from lenders that have decided to not offer the technology].


Smart, online mortgage-application technology is not new—it has been available to banks and credit unions nationwide since 1997. So why do some lenders resist it?

Despite the fact that more than 1,000 lenders across America have implemented a smart, online mortgage-application solution, others continue to resist the technology . The survey reveals that for lenders that do not currently provide a smart, online mortgage application and do not intend to do so, three primary issues stand in their way (Figure 11):

• Security concerns

• Regulatory challenges

• Cost issues

But are those concerns truly valid? Viewed from another perspective, the question could be more appropriately asked: “Do lenders that adopt smart, online mortgage-application solutions find themselves struggling with security concerns, regulatory challenges, and cost overruns?”

To get another perspective, Lieberman turned to the survey sponsor . Mortgagebot has been the market leader in online-lending technology since 1997, and has a client base of over 1,000 banks and credit unions . The company closely tracks how organizations are addressing issues of online-lending security, regulatory compliance, and costs .

The real reasons why some lenders do not originate online

Expense

Other budget priorities

Mortgage business works well without it

Would have to expand IT staff

The borrowers would not use it

Complexity

Insufficient information about this technology

Too impersonal for borrowers

Regulatory and/or audit concerns

20% 30%10%0% 40% 50% 60%

50%37%

41%30%

31%30%

19%22%

16%21%

12%17%

9%11%

9%12%

9%8%

9%6%

Security of process and borrower information

FIGURE 11

> $500 mm< $500 mm


How thorough is your organization’s due diligence? Survey findings indicate that the majority of banks and credit unions are currently evaluating or planning to evaluate smart, online mortgage-application technology solutions (refer to Figures 5 and 7 on pages 6 and 7 respectively). To ensure proper due diligence and maintain a balanced business perspective, how many lenders has your organization spoken with that have successfully implemented a smart, online lending solution?

At what stage are you in evaluating smart, online lending technology? From coast to coast, in urban, suburban, and rural communities, mortgage shoppers now prefer the Internet channel—which means that lenders must maintain a rich online presence to remain competitive. How far along is your organization in evaluating, selecting, and implementing a smart, online mortgage-application solution?


According to Mortgagebot, a more balanced view of the “top three

objections” can be gained by carefully examining each concern in

the light of real-world experience:

• Security concerns. Although the media frequently reports

breaches in data security, such failures are actually not

common—and certainly not inevitable . Advanced security

strategies (such as those maintained by Mortgagebot) can

dramatically reduce risk . While no technology provider can

guarantee that a security breach will never occur, Mortgagebot

has a reputation for working exceptionally hard to ensure that

all lender and borrower data are extremely well protected . All

information is secured by cutting-edge technology that includes

multiple, disaster-proof remote servers; redundant data back-ups;

stringent, multi-level security protocols; extensive data encryption;

and rigorous independent audits .

• Regulatory challenges. A properly designed mortgage-

application solution does not create regulatory problems; instead it

helps a lender to more effectively manage regulatory compliance .

An example is Cashmere Valley Bank, a billion-dollar institution

based in Cashmere, Wash . “Our compliance used to be all

manual,” said Ken Martin, Cashmere Valley President and Chief

Executive Officer . Martin said that when his organization decided

to implement an online lending solution, compliance was his top

concern . “Even with skilled people,” he noted, “things can get

sloppy when you get busy . But now our automated solution enables

us to do everything correctly—it gives us the control we need .”

• Cost issues. As with any business tool, there are costs

associated with a technology implementation . However, a lender’s

real concern must be with managing overall costs—which is

where online lending technology typically generates a solid return

on investment (ROI) . An example is NCB, FSB of Hillsboro, Ohio .

NCB has more than $1 .6 billion in assets, is a mortgage lender

in 17 states, and uses mortgage point-of-sale automation to gain

impressive overall cost savings . NCB Product Administrator

Rachel Green said that after adopting a smart, online application

solution, the bank’s origination costs declined 57 percent for

applications submitted through its mortgage Web site . NCB has

also seen a 38 percent drop in origination costs for mortgage

applications taken by its loan officers, who are also equipped

with automated tools designed specifically for them .


ConclusionA new reality is developingThe around-the-clock convenience of the Internet has radically transformed the service-level expectations of today’s consumers; and many lenders have embraced the Internet as a viable mortgage-origination channel and are benefitting from that decision.

The survey also reveals that the majority of banks and credit unions have not yet taken full advantage of smart, online mortgage technology—and the tide of the marketplace appears to be receding from them .

The Lieberman Research Group survey spotlights the key factors that are driving today’s industry shift toward the adoption of smart, online lending technology:

• Mortgage volume from the online channel is expected to grow dramatically. By 2013, banks expect mortgage volume through the online channel to grow by 225 percent . Credit unions—which already take a significant portion of their mortgage applications via the online channel—expect their online-channel volume to grow by 55 percent .

• The adoption of smart, online lending technology is building and appears to be inevitable. Only one in five banks and credit unions (18 percent) currently provides borrowers with a smart, online mortgage application . Four out of ten (39 percent) provide no online mortgage-application capability, and about the same number (42 percent) provide online borrowers with an inefficient, non-interactive, online form . However, the tide is turning: The majority of lenders (including 71 percent of banks) foresee a time when they will offer borrowers a smart, online mortgage application .

• Lenders are viewing the Internet as a key factor in their service equation. Lenders that have adopted or plan to adopt smart, online lending technology are doing so because they see the Internet channel as a way to better meet borrowers’ needs by efficiently automating the entire mortgage application, pricing, approval, and disclosure process .

• Lenders believe that point-of-sale channel integration will play an important role in their future. Banks and credit unions are realizing that using a single technology platform to integrate their Web, branch, call-center, and loan-officer channels can help them improve efficiency and provide a superior borrower experience .

The survey reveals that a new reality in online lending technology is developing . It is a reality in which most lenders foresee themselves adopting smart, online mortgage-application technology to provide a superior borrower experience, improve efficiency, reduce costs, increase loan volume, and compete more effectively . If you are a mortgage decision-maker at a bank or credit union, how do you plan to respond?


Survey background, methodology, and terminologySurvey respondents: All survey respondents were banks and credit unions (non-Mortgagebot clients) with assets in excess of $100 million .

• 14 percent response from a database of 2,391 financial institutions (1,876 banks; 515 credit unions)

• 330 total respondents: 251 banks (76 percent); 79 credit unions (24 percent)

Respondent breakdown by asset sizes:

• Organizations with $100 million to $499 million in assets = 230 interviews

• Organizations with $500 million in assets or greater = 100 interviews

Respondent titles: Typical respondent titles included CEO/President, Chief Lending Officer, Vice President, Executive Vice President, Senior Vice President, or Lending Manager .

Data accuracy: All survey findings are statistically significant at a 95 percent level of confidence .

Key survey-related definitions:

• “Smart” mortgage application: A “smart,” interactive mortgage-application system is a fully transactional, Web-based solution that enables self-serve, online borrowers to quickly complete a mortgage application, get accurate pricing, obtain conditional approval, and receive full disclosures—all online, in just minutes . Smart application technology walks borrowers through the data required, adjusting the questions that each applicant must answer according to each borrower’s unique situation . The interactive, intelligent logic embedded in the application process is what defines a smart application .

• Channel: The term “channel” refers to the different business channels through which lenders take mortgage applications, including: loan officers, branch-based service personnel, dedicated call center, mail, third-party broker/agent, or online applications that “self-serve” borrowers complete and submit through your organization’s Web site . [A channel is also called a point of sale, or POS .]

• Channel integration: There is a growing trend in the mortgage industry; it is called channel integration, in which a mortgage lender implements a single software solution to automate, streamline, and integrate every mortgage-application channel . For example, this technology enables a borrower to start an application in one channel (such as a Web site) and finish the same application over the phone, or in-person with a loan officer .

• Aided response: Response to a survey question for which the interviewer provides the answers to a question; respondents then describe or rank their level of agreement with the supplied answers .

Appendix

14 Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC

Lieberman Research Group is a top-ranked and nationally recognized market-research organization serving the business-to-business and consumer markets . Founded in 1966, it is now a $30 million custom research company . The company’s New York-based interviewing facilities in Manhattan and Brooklyn can conduct interviews in 20+ languages .

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Mortgagebot is the industry-leading, Inc . 5000 company that provides the unique, award-winning PowerSite® family of integrated point-of-sale (IPOS) solutions for taking mortgage applications from every business channel: consumer-direct via the Internet, in the branch or call center; or through professional loan officers . Mortgagebot blends deep mortgage experience with innovative “cloud-computing” technology to create scalable and affordable Web sites for over 1,000 lenders nationwide .

Lenders large and small view PowerSite as a “must-have” solution because it helps them grow their businesses, reduce costs, and compete more effectively . In addition, it is flexible, easy to use, and features a rapid and proven implementation process . PowerSite products include:

• PowerSite Consumer, which serves as a lender’s smart, self-serve, consumer-facing mortgage Web site . PowerSite Consumer takes mortgage applications directly from online borrowers 24/7, provides accurate pricing, issues conditional approvals, and provides full disclosures—all via the Internet, in as little as 20 minutes .

• PowerSite Advisor, which was created for use by branch staff or call-center representatives . After only brief training, associates can use PowerSite Advisor to take complete, error-free mortgage applications in just minutes .

• PowerSite Pro, the flexible origination toolkit designed to meet the unique needs of professional loan officers .

Mortgagebot also offers Mortgage Marvel® (www.MortgageMarvel.com), the award-winning, ad-free mortgage-shopping service that delivers accurate, anonymous, real-time rate quotes in seconds from a nationwide selection of lenders . But unlike other Web sites, Mortgage Marvel enables borrowers to link directly to their preferred lender—where they can complete a mortgage application and get pre-approved with full disclosures, all in as little as 20 minutes .

For more information about Mortgagebot, visit www.Mortgagebot.com, send your e-mail to [email protected], or call 877-861-3354.

AboutLieberman Research Group

Mortgagebot LLC

Online Lending: The New Reality | August 2010 | Lieberman Research Group and Mortgagebot LLC 15

Notes1 “The Silver Lining in Lending: Turning Doubters into Online Believers,” by Annette Tirabasso and Kimberly Spears (May 2008); published

by Deloitte Development LLC .

2 “Benchmarks 2009 ” (June 2009); published by Mortgagebot LLC (Mequon, Wis .) .

3 “Who Applies for Loans Online? The Answer Might Surprise You,” by Denise Senecal (May 3, 2010), published on CreditUnions .com (Callahan & Associates, Washington, DC) .

4 “Five Sales/CRM/Service Initiatives for a Strange Year,” by Terence Roche, from the GonzoBanker newsletter (March 13, 2009); Published by Cornerstone Advisors, Inc . (Scottsdale, Ariz .) .

Online Lending: The New Reality

Groundbreaking New Market Research Profiling the Adoption of OnlineMortgage-Lending Technology by American Banks and Credit Unions

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Online Lending: The New Reality