Mortgage.com, a publicly traded loan processor, announced Tuesday that it will lay off 518 of 618 employees as it exits the online lending business.
In a statement, the company said it plans to sell assets including the current pipeline of mortgage loans, the "www.mortgage.com" address, and its loan processing software. Sunrise, Fla.-based Mortgage.com was founded in 1994.
Mortgage.com joins a long list of Internet companies that have recently slashed jobs or closed their doors altogether. In recent weeks, beleaguered online pet store Petopia laid off 120 employees, or 60 percent of its staff, and online postage site Stamps.com laid off 240 workers.
But in Mortage.com's case the decline is particularly noteworthy for several reasons: the large number of lost jobs, its status as a public company, and the anxiety that Tuesday's developments are likely to cause its customers.
For example, the statement ominously noted that "the company is in violation of certain covenants of its mortgage loan warehousing agreement, including covenants regarding liquidity and tangible net worth." The meaning of the violations could not be determined, as callers to Mortgage.com received a recorded message and were placed on hold for several minutes.
Meanwhile, a notice on the company's Web site states that "Mortgage.com is not currently accepting new applications" and lists a phone number for customers to call for information about pending loan applications.
After the announcement, the company's shares plunged to 9 cents from Monday's closing price of 44 cents. In the past year, the stock has traded as high as $13.31.
Mortgage.com also announced Tuesday that third-quarter results will be released Nov. 14 and that an earnings conference call with analysts has been canceled.
For the second quarter, Mortgage.com reported revenue of $11.0 million and a net loss of $11.1 million, compared with revenue of $16.9 million and a loss of $8.6 million for the second quarter of 1999.
"We are extremely disappointed that we have not been able to raise sufficient capital to reach profitability," chairman Seth
Werner said in the statement.
Werner added, "In the final analysis...the online mortgage industry has not been able to demonstrate its ability to deliver cost-effective mortgage loans to consumers at a profit."
Matt Carrick, a research analyst at Gomez, said it is "very tough for these firms to survive when their margins are so thin and the customer acquisition costs are so high."
In addition, the vast majority of visitors to an online mortgage site do little more than research various loan rates and costs. Fewer than 1 percent actually close a deal, according to Gomez.
To get around these hurdles, Mortgage.com announced in March that it would de-emphasize consumer lending and focus on selling its technology to financial institutions. It lined up such customers as TD Waterhouse and General Electric Financial Network.
"Given the market downturn and their struggling share price...Mortgage.com just wasn't able to gain the traction in the business market that they had hoped for," Carrick said.
E-Loan, another publicly traded online lender, also has struggled this year. Its stock closed Tuesday at $2.88, down from a 52-week high of nearly $30. Meanwhile, online businesses that simply refer customers to lending organizations, such as Lending Tree and iOwn, have fared better, Carrick said.
In August 1999, Mortgage.com raised $56 million by selling 7 million shares at $8. The company had hoped to sell its shares for $10 to $12, a range set by underwriter Credit Suisse First Boston.
The sale of the 16 percent stake in the company gave it a first-day market valuation of more than $350 million. At 9 cents per share, its market cap is $4.1 million.