Collaborative e-advice and improved automated loan decision-making tools will be critical to increase the numbers of consumers opting for online mortgage lending. These are some of the findings of a report from IT researchers TowerGroup, based in Boston, US.

The research shows that online mortgage sales have grown slowly over the past four years, reaching approximately $13 billion in 2000 or 1.3% of total US mortgages originated for that year.

There was a significant increase to 3% in 2001 but total online mortgage lending volume will be relatively flat in 2002, increasing to 4.35% as total lending market declines, according to the research.

However, TowerGroup expects online mortgage volumes to increase steadily over the next four years. More consumers will become comfortable applying online for home purchase loans. Online loan product selection tools will be enhanced so that borrowers' preferences for loans and final price offers are better matched.

TowerGroup forecasts that total online mortgage sales will grow from $45 billion in 2001 to $180 billion in 2005, ultimately accounting for more than 12% of total US mortgages.

There are two key growth drivers: e-advice and automated decision-making tools. The TowerGroup says that mortgage lending firms wishing to gain the most value from online channels and provide the most value to current and potential customers should increase their investment in these areas.

Craig Focardi, a TowerGroup senior analyst, says: "Interactive e-advice at the start of the loan process, coupled with rapid automated underwriting and loan pricing tools once an application is submitted, will make a major difference in driving consumer adoption rates.

"E-advice will bring the value-added components of offline lending to the online arena. During the pre-qualification stage, when borrowers submit their loan preferences and financial profile online, they can engage in a 'dialogue' with Web-based loan product selection tools, which will help them through the complex lending process."

Automated loan decision-making systems will add speed and transparency to the online mortgage process. Once a borrower submits an online application, a lender's automated decision-making system will respond with a loan approval and firm interest rate offer within minutes - not hours or days.

During the fulfillment process, email and secure Web pages will provide real-time status information to keep borrowers informed about the progress of their request.