In the first two years of the migration of real estate to the Internet, nearly all efforts have pointed toward database aggregation and Web marketing. Little attention has been paid to developing a truly secure online transaction using encryption that guarantees financial safety.
But without the confidence of unbreakable cryptographic systems, few buyers and sellers of real estate would ever take the next step and actually move funds or transfer ownership online.
No title company will insure nor will a lender finance a property in an online transaction until systems are in place that are at least as secure as the traditional method of signing and passing along pieces of paper.
Two events, a new service by Zions Bancorporation in Utah and the RSA Data Security Conference in San Francisco, may signal a year in which the term “digital certificate” becomes part of the language of real estate.
A digital certificate, or digital signature, is a string of encrypted characters tacked onto an electronic message that identifies and authenticates the sender and the document.
Some digital signature techniques also provide a seal function by providing a check against any tampering with the text of the message after the digital signature is appended.
Zions, a $9 billion regional full service bank, including mortgage lending, has become the world’s first financial institution to issue digital certificates for secure online financial transactions.
While digital certificates already are available from companies such as IBM, GTE and VeriSign, the move by Zions is based on the belief that a bank is more likely to be trusted in a financial transaction than a high-tech third party.
Two years ago, Utah became the first state to pass digital signature legislation. The Utah Digital Signature Act recognizes digital certificates as the legal equivalent to traditional “wet” signatures.
The Utah law provides that in disputes involving properly verified digital signatures, the burden is on the signer to prove that the signature is not valid, rather than on the recipient to prove that it is, as is the case with paper-based transactions.
The Zions technology is provided by its own subsidiary company, Digital Signature Trust Company (DST), which has gained a reputation in the financial community as an aggressive developer of secure systems for online financial transactions, including Secure Electronic Transaction (SET) and Public Key Infrastructure (PKI) technology services.
DST issues, stores and verifies digital certificates, which are used in the digital “signing” of electronic documents and electronic transactions.
DST has been testing the software with the Utah Department of Commerce and the Mormon Church for the last year. The Zions service uses digital certificate software developed by several vendors, including Certco, Entrust, GTE, VeriSign, and Xcert. All of these companies attended the recent RSA Data Security conference in San Francisco.
One company to watch is GTE, which is active in both real estate and in digital certificates. GTE CyberTrust server certificates are digital certificates designed to support the Secure Sockets Layer (SSL) protocol, the prevailing industry standard for protecting data exchanged between a Web browser and server.
Kenneth V. Smith.
Ready refinancing
Though still in their infancy, online mortgage multi-lenders happen to be growing up during one of the biggest mortgage refinancing booms in history.
And you can bet they’re feeling the workload, perhaps more than their conventional counterparts. Homeowners already are knowledgeable about the mortgage process and they can shop and lock down current rates faster and cheaper on the Internet than through traditional lending sources.
“If they know (the benefits of refinancing), they’re more likely to use an online option than first-time buyers,” said Deirdre Polson, marketing director for online mortgage service HomeShark. “That’s our assumption, anyway.”
The 30-year fixed-rate mortgages have been plummeting for months to their lowest levels in a quarter century, fueling a boom in the refinancing market unseen in decades. It got even hotter when Federal Reserve Chairman Alan Greenspan hinted at the possibility of deflation in a speech before the American Economic Association. Greenspan’s comments sent rates on long-term Treasuries crashing below the 7 percent barrier.
Polson said she had just had a meeting with colleagues during which they discussed the impact of the boom and how to better target consumers looking to refinance.
Polson estimates refinancing accounts for about a third of HomeShark’s business, which, according to HomeShark’s mortgage professionals, is “about where you want it during the boom periods,” she said.
The refinancing boom may be having an even bigger impact on online lenders E-Loan. CEO Janina Pawlowski said refinanced loans were accounting for half of E-Loan’s business. However, she said, activity rises when rates fluctuate, rather than when they’re on a steady decrease as they have been.
“It seems when the rates are steadily going down, people wait,” Pawlowski said. “But when they go down, spike up a little bit, and then they start to go down again, that kind of starts the transactions.”
With the refi boom boosting business, both execs say consumer service is becoming more important than ever. E-Loan recently expanded into a second office, and HomeShark is considering a similar move, according to Polson.
Polson said HomeShark is also looking into tools specifically for refinancing customers.
“Our challenge, in general, is we have to get the word out to all those segments that this is an option,” she said.
Lenders line up
If online lending became legitimate in 1997, 1998 could be the year the category bursts into the mainstream.
Already, another player is lined up to debut: Interloan.com, the Internet arm of direct lenders CMG Mortgage Co. in San Ramon, Calif. The site, which went live last week, is a multi-lender residential mortgage source for consumers who will be able to apply online for loans and save up to 80 percent in cost, fees and commissions, according to the company.
But where other services have eliminated the need for loan agents, Interloan will retain them to provide personal guidance for consumers during the loan process.
“Our take on this whole thing is to do the same discount service–but also have a live agent for people to talk to,” said Dave Politzer, CMG founder and managing partner.
According to CMG, there now are 60 million Internet users and E-commerce is expected to grow exponentially over the next few years.
“We expect a large part of residential lending will be conducted over the Internet,” Politzer said.
He said service is becoming of utmost importance in the growing online mortgage arena. He added that other consumer sites, while successful, have been “buried by business.”
“People just need to know about it,” Politzer said. “We believe that if you provide a quality site that’s interactive with quality people on the other end to back it up, you will be successful.”
Interloan.com is at http://www.interloan.com.
CMG Mortgage funded more than $1 billion worth of residential mortgages in the last 18 months and is one of the fastest growing mortgage bankers in Northern California, according to the company.
Offline assistance
If you need help deciding whether to buy or rent, you can find plenty of assistance online. But do you want to tie up the phone when you’re expecting a call from Aunt Lorraine–or a client?
HomeBuyer–The Book and Software Home Buying Kit for Windows–offers one way to get those mortgage calculators and loan package comparisons off the Web and onto your computer.
For $12, the HomeBuyer kit provides the same tools as well as graphs, a state-by-state home-buying guide, and a 136-page guidebook good for consumers or real estate agents looking for a cheaper and quicker way of delivering those services to clients.
A trial version of the application, produced by Berkeley, Calif.-based Stratosphere Publishing, can be downloaded from the company’s Web site for free.
For the consumer, HomeBuyer allows users to organize their home search and figure out whether renting or owning is better, and holds their hand through the home-buying process until escrow is closed.
