If housing sales slow, so does the revenue banks get from loans. The slumping housing market is gonna hurt a lot of banks (ie bank stocks) and they are reacting.
One tack is going online to make it easier for people to get loans. One wonders about loaning money to people you never meet who have no collateral. Then again, we already have credit cards. Maybe this is just an improvement of market efficiency.
Online Loans Get Lots of Hits
More Banks Log In, Chasing Credit-Hungry Consumers
Wall Street Journal
October 21, 2006
After focusing on offering high-yield online-savings accounts as a way to attract deposits, financial institutions are offering more online loans, giving borrowers access to lower-cost options.
Citigroup Inc.'s Citibank Direct, the online-banking division that launched a high-yield online savings account earlier this year, is expected to roll out a new online-lending center this weekend that will feature lower rates on various types of loans, including home and student loans along with personal lines of credit.
The Web site will consolidate all of the bank's loans -- which, for now, will feature the same rates offered elsewhere in the bank -- although the company plans to offer lower Internet-only rates on many of those loans later this year, says Steve Kietz, president of Citibank Direct.
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With more people using the Internet to compare prices, pay bills and manage their finances, the online-loan market is a potentially lucrative revenue source for banks. The percentage of U.S. consumers who took out loans over the Internet is estimated to have increased to 26% of new loans in 2005 from 12% of new loans in 2002, according to a 2003 report from Celent LLC, a research and consulting firm.
For consumers, the online loans are an alternative to higher-rate credit cards or personal lines of credit offered by brick-and-mortar banks. The average personal loan is now 14.51%, while the average variable credit-card rate is 14.08%, according to Bankrate.com. Some of the best rates online, however, are typically available only to consumers with strong credit scores.
Another appealing aspect of borrowing online is the faster approval time. Citibank's online lending center will offer instant approvals on student loans and home-equity lines of credit. That instant-approval process will be expanded to personal loans and overdraft protection early next year, says Mr. Kietz. E-Loan says it plans to electronically transfer money into a borrower's checking account the same day he or she applies for the loan or send a check to the borrower the next day.
Another tack is just to pay the consumers for their business. From a business strategy perspective, competing on price is a loser but what can you do?
Banks Take a New Tack On Mortgage Lending
With Loan Volume Slowing, Rebates and Rate Discounts Are Used to Woo Customers
Wall Street Journal
November 1, 2006
Get a mortgage from another lender and we will pay you $250.
That is the latest marketing twist from Bank of America Corp. With competition for home loans increasing, the Charlotte, N.C., lender is encouraging its customers to apply for a mortgage with the bank and then shop around. If they decide to get their home loan elsewhere, Bank of America will write a $250 check to cover a portion of their closing costs.
The Bank of America offering is the latest sign some lenders are beginning to emphasize price, service and stronger customer relationships in the face of slowing loan volume. Mortgage originations fell 29% in the third quarter compared with the same period last year, according to the Mortgage Bankers Association, as the housing market cooled and rising interest rates made it less attractive for borrowers to refinance.
The offers represent a new tactic for lenders, which for years vied for customers by rolling out mortgage products that allowed borrowers to lower their monthly payments. These include interest-only mortgages that allow borrowers to pay interest and no principal in the loan's early years, option adjustable-rate mortgages that let borrowers make a minimum payment but can lead to a rising loan balance, and mortgages with 40-year terms. But the flow of new products has slowed and bank regulators have raised questions about the risks some nontraditional mortgages may pose to borrowers and lenders.
