Low interest rates keep Net lenders busy

"I thought it was very easy," said Silva, who had never refinanced a home before and never met an E-Loan representative in person during the month-long process. Plus, she says, she ended up with a lower interest rate on her mortgage.

Silva is one of a growing number of home owners going online to refinance their homes. Lower interest rates have spurred a boom in the refinancing market across the board. But online sites are getting a particularly heavy load of traffic from people doing everything from researching rates to filling out forms.

When rates drop, home owners who choose to refinance typically do so to get a lower interest rate on their mortgages in hopes of saving money and lowering their monthly payments.

And although online companies get just 2 percent to 3 percent of the overall home loan market, that number can add up--especially because home loans are expected to be a $2 trillion market this year, according to the Mortgage Bankers Association of America. Refinancing is expected to account for more than $1 trillion of those loans.

Online lenders such as E-Loan, Priceline Mortgage and NetBank say they have seen a big upswing in refinancing loans in recent months. Atlanta-based NetBank, which provides mortgage and refinancing loans through partner HomeSide Lending, has three times the volume of these type of loans compared with what it had last year. E-Loan posted its first-ever pro forma profit in the third quarter, in part based on the booming refinancing business.

"Customers are going out there and finding that the process is pretty good," said Raj Dhinsay, an analyst at Jupiter Media Metrix. "Most of the (online lending) offerings have been built up pretty well. You're seeing adoption rise in terms of doing this online."

The upside for online customers is the convenience of starting the process from their desktops, instead of making an appointment with a lender. They can also research rates and fees, use online refinancing calculators, and compare multiple offers from different lenders at sites such as LendingTree.

E-Loan, for example, says it can approve an application in just two minutes, and customers can lock in their rates online or on the phone with a representative. But because the sites tend to change their rates daily, it can be more volatile. At one point last week, the rate spiked three-quarters of a point, scaring off some potential refinancing customers.

Additionally, most of the paperwork has to be signed in person. Despite last year's digital signature bill that recognizes the legality of online "signatures," lending companies have yet to work out a standard for electronic documents and require customers to sign and submit paper documents for their loans.

"You get tired of signing," Silva said. "There were about 50 sheets of paper to sign."

Customers also have to get their homes appraised, another offline process. Online lenders will typically take care of the logistics of getting the appraisals, contracting with other companies to do them. But the surge in refinancing applications has led to a backlog in the number of appraisals that need to be done.

"In a normal time period, getting an appraisal is typically a one- to two-week process," E-Loan President Joe Kennedy said. "Because demand is so heavy right now, it can be a three- to four-week process, depending on the specific area."

Despite allowing them to file applications online, lenders often refer customers to telephone call centers for questions or to complete the application process. For Silva, this was one of the more frustrating parts about applying for her loan. She rarely was able to reach a customer service representative immediately.

"They were so swamped with work, that if you have a question, it may take a couple of days before they get back to you," she said.

Traditional lenders, such as Wells Fargo, have taken notice of the competition and have beefed up online efforts.

In August, Wells Fargo introduced a service that allows its mortgage customers who want to refinance to go through an expedited application process online. After customers enter their loan numbers and the last four digits of their social security numbers, Wells Fargo compares their current loans with the refinancing offers it has available. The feature speeds the process of applying for a new loan by pre-filling out an application and by not requiring customers to submit a credit report or appraisal, which are typically needed for such loans.