PHILLIP E. HUFF
Revenue-based models

With the advent of the online mortgage Web site, consumers can now do business beyond the hours of 9 a.m. to 5 p.m. and Stephen Tomaselli, president and co-founder of Sharon-based Loansnap.com, knows that can be a big selling point. Being available to customers after normal work hours has become a key marketing strategy for the mortgage company and Tomaselli cites it as one reason Loansnap.com survived the dot-com downturn.

“We’re around because we embraced the concept of our business in an online environment,” Tomaselli said.

Loansnap.com is celebrating its fifth year in operation, a noteworthy accomplishment for any business. But because those five years encompassed the dot-com firestorm that saw so many Internet-based businesses crash and burn, the anniversary is especially sweet for Tomaselli and his partners.

According to Warren Myer, chief executive officer of California-based Myers Internet, which provides technology services to lenders, the companies that controlled costs while acquiring customers were the ones to survive the dot-com bust. Myer notes that the businesses that overspent on advertising are no longer in existence.

Phillip E. Huff, president of eLynx, a Cincinnati-based company that provides electronic data solutions to mortgage brokers and lenders nationwide, said during the height of the dot-com days, many business plans were “written on napkins” and never fleshed out. The businesses that developed a revenue system while providing value to consumers survived.

“They built a model [based] on revenue, not ideas,” said Huff. “[And] you’re making use of the Internet to provide value.”

Ultimately, Huff said, the online businesses that thrived were those that went back to the “cold, hard” principles of good business.

Loansnap.com not only survived the dot-com shakeup, it has flourished. The company has expanded into seven offices with more than 130 employees. Loansnap.com, founded in 1999, opened its second office in Foxboro in 2001. A year later, the company undertook a major expansion project with office openings in Wakefield, Dartmouth and Littleton.

“While the industry is in the midst of downsizing, Loansnap.com is still expanding our facilities and hiring new mortgage advisors,” Tomaselli said in announcing company’s five-year anniversary.

According to Tomaselli, Loansnap.com did 20 times more business in year five than in year one.

“It surpassed our expectations,” said Tomaselli.

While Loansnap.com does offer refinancing, Tomaselli said the major priority for the company has been home purchase loans.

Loansnap.com was founded with money from the three owners of the company and a “realistic” plan, according to Tomaselli.

“We had our own capital at stake,” Tomaselli said.

The founders also had a specific goal for their investment. Tomaselli said they never wanted to be the biggest in the market.

“Our goal was always to be a quality company,” he said.

Tomaselli said the strategy guiding Loansnap.com’s online presence has been to provide technology to people in order to make the mortgage transaction simple and fast.

“You need to be able to respond to people that have an online mindset,” Tomaselli said. “A lot of business comes in at nontraditional business hours.”

For example, if an application comes in at 11 p.m. via the Web site, Tomaselli said a mortgage advisor will get the lead and e-mail the applicant soon after. However, a phone call will be placed to the consumer during regular business hours.

Standing Out

Tomaselli said the main challenges with an online site are largely a result of constant changes within the industry. Keeping the site updated with new information and remaining compliant with various laws and regulations can be a challenge, he said.

The Loansnap.com homepage includes links to a loan application, loan programs, frequently asked questions and current interest rates, updated daily. Tomaselli said the latter is the most heavily hit link on the site.

Tomaselli said when Loansnap.com was in its infancy, he saw other online lenders offering lower “unattainable” rates. Tomaselli said he vowed he would not try to compete with those lenders.

Tomaselli said he believes Loansnap.com also survived the dot-com meltdown, in part, because of the site’s design. The site is designed, Tomaselli said, with the idea that most of its users will not be experts in the mortgage field.

“We tried to remind ourselves [when designing the Web site] that the average consumer doesn’t know [a lot about mortgages],” said Tomaselli.

Myer said Internet mortgage companies are realizing they need to be more functional. He noted that consumers used to be satisfied with a mortgage calculator and basic content. But in today’s market, potential homebuyers are expecting current rates, loan applications and loan status all on one site.

He also said there is more pressure on companies to respond quickly to inquiries and applications.

“People going online are used to instant gratification,” Myer said.

If a Web site is lacking in information, Myer said a customer is more likely to go elsewhere sooner because Internet customers tend to be less loyal.

Huff said it is important for Web sites to be user-friendly, as well as easily accessible. He notes that even though the site exists, it can struggle if there are no references to it elsewhere.

He said the companies that were successful in the 1990s found where customers were searching online for mortgages, for example search engines, and put their names there.

Tomaselli considers Loansnap.com to be an Internet company that offers mortgages. The company has developed its own technology, which allows employees to track an application from start to finish. The company currently is developing a new system to replace older technology.

“We do have plans Â… to revamp the Web site and put more features on it,” said Tomaselli.

Huff advises online companies to “finely tune” their sites to ensure success on the Web.

In addition to the Loansnap.com site, the company has put brick-and-mortar branches in local communities in Massachusetts, which has proven to be more challenging.

Tomaselli said it is easier to expand the Web site’s reach with advertising, while it is more difficult building offices because the company must find locations and staff and obtain licensing.

Analysts say the physical mortgage offices help the Internet companies stay afloat.

“I think a brick-and-mortar presence does help,” said Myer.

Huff said strategies that employ mortgage offices in concert with a Web site appear to be working.

“Having a physical location is proving to be desirable, as well,” said Huff.

Tomaselli said that online competition will likely increase as more companies – armed with a plethora of lessons learned from the past – begin to offer Web-based mortgage services. With the “Do Not Call” legislation, Tomaselli said more Web sites are going up as companies look for other ways to reach consumers.

But analysts say there are ways to stand out among the mix of online lenders and brokers.

Huff said giving customers the ability to conduct many functions of the loan process online will become crucial. In today’s market, Huff said, there is a significant majority of consumers looking to find a loan online, but few use the Internet to do the loan closing. Huff said sites that provide a potential homebuyer with the ability to sign disclosures and applications online will become more popular.

“The ones that provide origination and closings Â… those are the ones that will stand out,” said Huff.

Both Huff and Myer said Internet mortgage companies could ultimately save money for consumers if the process is done right. Myer noted that a company could end up having fewer costs for loan officers because customers do more of the work online.