SAN FRANCISCO — A start-up promising to provide an industrywide framework for making home loans on the Internet has secured an additional $43 million in venture capital, overcoming investors' recent disdain for online mortgage businesses.
Oakland-based Xpede Inc. received the infusion in a second round of venture capital funding that will be officially announced Tuesday. The latest investors include one of its first customers, Charlotte, N.C.-based First Union Bank, and Fannie Mae, the quasi-government agency that creates a secondary market for mortgages.
Other investors include The Mayfield Fund, Rosewood Capital and Oak Hill Partners, all of whom contributed to the $10 million in seed money that helped launch Xpede last year.
The $43-million injection represents a significant vote of confidence in Xpede's business strategy.
The company, which has about 100 employees, wants to provide the nation's biggest mortgage lenders with the technological know-how and administrative support to process loan applications over the Internet.
Xpede's plan is built on the premise that the nation's biggest lenders are bound to attract more prospective online borrowers, but aren't equipped with the technology to meet the increased demand.
The online lending market is expected to swell from $26 billion in 1999 to $167 billion in 2003, according to estimates by Forrester Research.
Xpede tailors its software to plug into lenders' existing Web sites and process mortgage applications in a manner transparent to customers. In theory, the process will appeal to lenders and borrowers alike by lowering transaction costs and saving everyone money.
The formula has mostly produced financial frustration for online mortgage lenders so far.
E-Loan Inc., which closed online mortgages totaling $1.5 billion in 1999, has lost $98 million since the end of 1998 and its stock finished Monday's trading 93% below its high reached last summer. Finet.com, another pioneer in online mortgage lending, has experienced similar problems with more than $30 million in losses in the last year and a stock that ended Monday 88% below its 52-week high.
Art Bender, an online mortgage analyst for CS First Boston in San Francisco, said the early troubles of online mortgage lenders stem from the millions of dollars spent just to lure visitors to their sites.
Because Xpede's model leverages the brand names of well-known banks, it has a much better chance of succeeding, said Art Bender, an online mortgage analyst for CS First Boston in San Francisco. "Xpede is well positioned," he said. "More and more major financial institutions are looking to third party sources for these kind of online solutions. Technology is not their core competency, so this is a rational way to go."
A new federal law that will authorize the use of digital signatures to close online business transactions also is expected to give the entire industry a lift.
First Union and Finance America are the only lenders that have announced their intention to use Xpede's software to process online mortgages.
Jim Noack, Xpede's chief executive officer, said the company already has signed deals with more than 10 other major lenders that will be identified in the next few months. Noack said Xpede hopes to sell its software to the 25 largest mortgage lenders in the country.
One of the nation's largest lenders, Seattle-based Washington Mutual, last month announced that it had signed GHR Systems Inc. and Framework Inc. to handle its online mortgage business.