Mr. Broderick is a principal of GHR, which has introduced a computerized loan origination system called Mars. He helped develop an early system of the kind for New Jersey-based Schlott Realtors.
This article, in which he discusses the differences between old and new origination systems, is adapted from a talk given this month at the Eastern Secondary Mortgage Market Conference in Raleigh, N.C.
I'm holding in my hands several pages taken from the real estate section of my local newspaper.
Only a handful of these ads give the loan-to-value or down payment requirements. The APRs include only interest and points, although few ads state the actual points. Most ads state "new applications only" or "for loans closing today," implying: "Don't even think about locking in today's rates."
These lenders are just trying to get the phone to ring. But pity the poor shoppers or home-buyers relying on this information when about to make a decision to own the American dream, the financial implications of which will dramatically affect their savings, lifestyle, and peace of mind for years to come.
It should surprise no one that the increasing sophistication of consumers, along with the proliferation of types of mortgage programs, has created a demand for a powerful counseling capability as well as for providing a choice among the products of different lenders at a single point of sale.
Tremendous Potential
Thus, the challenge of creating an efficient computerized loan origination system has emerged.
The great potential of the computerized origination system has long been recognized from the standpoints of both consumer convenience and the desire on the part of the real estate professional to control the home sale transaction. The real estate office is the logical and economical place to deliver mortgages.
However, with one partial exception, past attempts to realize that potential have failed.
A deficiency in early systems was that every lender had to appear on the terminal of every real estate agent in the system. That led to menu congestion and a limitation on the number of lenders.
This meant that each computerized origination system was geographically limited.
In contrast, today's complete systems allow realty agents to select the particular lenders they want from the list of those on the system, and there is no limit on the number of lenders.
Early computerized systems permitted lenders to adjust prices to property, borrower, and transaction characteristics only by defining new mortgage programs, which was both time consuming and error prone, both at the back-office level and the point of sale.
The complete system handles these variations as rate and price increments and decrements, providing unlimited pricing flexibility.
If available at all, counseling on early systems was primitive, because the product information consisted of textual descriptions of how the mortgages worked. In contrast, the complete system has extensive analytical capacity for comparing the costs and benefits of different products.
The older systems either allowed each lender to process loan applications on its own, so mortgage counselors could not obtain information on loan status electronically; or they forced all lenders to use the built-in processing system, which created compatibility problems.
Today's computerized origination system allows lenders to use their existing processing system and generates status information through interfaces with each subsystem.
The older systems had few if any quality controls. The new ones have hundreds of completeness and consistency checks that must be satisfied before an application can be exported.
Legal Questions
With old systems, a loan counselor had to do a manual check on the legality of a mortgage program for a particular borrower.
In a complete computerized origination system, only programs and terms that are legal for the borrower can be accessed by the loan counselor.
In past systems, loan price updates were entered manually, providing opportunity for data entry mistakes, and imposing an additional work burden on lenders.
In the complete computerized origination system, prices are transferred electronically from the lender's pricing system through a clearing house function to the point of sale.
Counselors using the old systems could never be certain the prices on the screen were current, and commitments made on lapsed prices were a recurrent problem.
Today's system prevents a mortgage counselor from either locking in a mortgage or transmitting a loan application on the basis of a superseded price.
