Priceline Sweetens Mortgage Rate Plan

In a bid to capture a larger market share of the personal financing industry, Priceline.com (Nasdaq: PCLN) announced Wednesday that it is expanding its mortgage service to allow borrowers to secure the lowest possible interest rates.

The new options will be offered through the e-tailer's licensee PricelineMortage and will follow the "name-your-own-price" business model.

As part of the service, borrowers will not only be able to lock in a customized rate when an application is made, but also will automatically qualify to obtain a lower figure if rates drop before the loan closes. Previously, the rate at application was the lowest possible percentage borrowers could receive from PricelineMortgage.

Closing the Deal

Among the other offerings that will be available to borrowers are real-time loan request evaluations, Web-based lock-ins and live online chat support from loan counselors, according to PricelineMortgage.

The company said it will not take a one-rate-fits-all approach. Instead, approval of a customer's requested interest rates will be determined by individual credit history and loan attributes.

PricelineMortgage is an operating subsidiary of Federal Savings Bank and has closed loans in all 50 states, as well as the District of Columbia.

Bump in the Road?

The expansion of PricelineMortage's service comes as the housing market continues to show strength, and barriers to home ownership are getting lower, such as the difficulty in saving for a down payment.

Consumers are also demonstrating increasing interest in streamlining the home-buying process by taking advantage of opportunities to apply for financing online.

In fact, a study released last year by financial services giant Fannie Mae found that 51 percent of Americans believe most home mortgages will be handled online by 2005. Moreover, 28 percent of those surveyed for the report said they would definitely or probably use the Internet to apply for a mortgage, up from 20 percent four years ago.

However, Fannie Mae also uncovered evidence that does not bode well for online mortgage lenders. According to the study, the Internet is still predominantly viewed as a source of research and information for getting a mortgage. Only one-third of those surveyed said they currently consider the Web a viable method for securing financing.

Possibly more problematic for online lenders such as PricelineMortgage is the fact that over 81 percent of the respondents said they would prefer to apply for financing with a traditional bank that has a solid reputation -- even if the bank is not an expert in online transactions -- rather than a pure-play Internet company.

Increasing Losses

Despite the expansion of its mortgage service, Priceline has struggled in recent months amid increased competition and a plummeting stock price.

In its fourth quarter earnings report released last month, the Norwalk, Connecticut-based e-tailer said it lost US$25 million, or 15 cents per share, before restructuring and other charges in the quarter ended December 31st. Analysts had been predicting a loss of 7 cents per share. In the year-earlier quarter, the company reported a loss of $10 million, or 6 cents per share.

Despite the disappointing report, Priceline said it is on track to have a pro forma operating profit during the second quarter of this year.

The company's revenue for the quarter totaled $228.2 million, an increase of 34.8 percent from the $169.2 million it reported for the fourth quarter of a year earlier. Revenue for all of 2000 increased 156.1 percent, from $482.4 million in 1999 to $1.24 billion in 2000.

On Wednesday morning trading, the company's stock was down 19 cents or 7.89 percent, to $2.19.