Larry Walker is accustomed to challenges.
A 20-year veteran of the mortgage industry who worked his way up from typist in the collections department to executive status, Mr. Walker has become an expert on managing mortgage companies' back-office operations, working to bring technology in step with business objectives.
Recruited a year ago by Electronic Data Systems Corp. as director of the company's mortgage and real estate industry group, Mr. Walker is now putting his knowledge and skills to work on a new challenge: heading an ambitious project to "reshape the mortgage industry."
The Plano, Tex.-based technology provider, a unit of General Motors Corp., wants to change the way loans are originated, processed, and serviced, largely through the use of technology.
The initiative, involving technology vendors and a host of other mortgage industry players, aims to cut costs, increase business, and develop new markets, a vision that will take two to three years to deliver, Mr. Walker said.
"If we can't change the industry, we want to at least be a catalyst for the industry to change itself," he said.
One of the things EDS hopes to change is the cost of servicing loans. According to KPMG Peat Marwick's annual production and benchmarking study of the mortgage industry, a mortgage loan costs between $60 and $70 to service. Costs are incurred in a number of areas, including data processing, customer service, investor services, and new loan setup.
To remain competitive, mortgage companies are looking to streamline these operations, Mr. Walker said, adding that technology offers a solution.
Another need EDS identified is for the industry to increase its business. "The market isn't really growing for mortgage lending," said Mr. Walker. "Mortgage companies are predominantly engaged in gobbling up each other's market share by undercutting each other's prices."
To gain new customers, mortgage companies must differentiate themselves with better and faster service - an area in which technology can play a key role, he said.
EDS also believes that the industry needs to reach new markets by looking beyond U.S. borders.
"The globalization of the mortgage industry is becoming greater," said Mr. Walker. "We've found that other countries are hungry for the American mortgage-lending experience and want to replicate that environment."
EDS plans to address this need by redesigning lending systems to handle the laws, languages, and currencies of other countries, a task the company is already engaged in for the European market.
Such changes are necessary for the industry's survival, Mr. Walker said.
"We're coming at this from the focus of how we can help the industry avoid extinction."
Many mortgage companies are already using technology to gain efficiencies and improve service by automating such lending functions as origination and underwriting.
According to Mortech 94, a biennial analysis of the use of technology in the mortgage industry, more than 50% of large lenders - defined as those originating $1 billion or more - are in the market for a new origination system.
"Lenders are looking for new systems at a rate higher than usual, particularly for origination, but also for secondary marketing and servicing," said Jeff Lebowitz, principal of SSP Associates, the mortgage industry strategy consultants who wrote the study.
SSP, based in Chevy Chase, Md., conducted the study with Real Estate Solutions Inc., a Washington-based mortgage and real estate consulting firm. The findings are based on more than 600 completed interviews at mortgage banks, commercial banks, and thrifts.
The findings show that lenders are looking for more than run-of-the-mill automation of functions and are demanding greater integration and flexibility from technology, Mr. Lebowitz said.
This is where EDS sees its opportunity.
Acknowledging that there are already strong systems in the market for such core lending applications as loan origination, underwriting, secondary marketing, and servicing, the company plans to partner with technology vendors, and add value to the systems by providing consulting, systems development, integration and management, and process engineering.
"The systems (already in the market) automate, but don't reengineer existing processes," said Mr. Walker. "EDS sees this as an opportunity."
The company is seeking to "technically enable" existing systems with such technologies as imaging, electronic data interchange, mobile computing, the Internet, and others.
By supplementing the existing pipeline with technology, EDS hopes to reduce the amount of time that a loan spends in each segment of the process, thereby cutting costs to lenders, and, ultimately, to consumers.
As head of the project, Mr. Walker's task on a day-to-day basis is to identify business needs in the industry and to work with EDS technology personnel to meet those needs. The project involves specialists from a number of EDS technology areas, including customer service, imaging, and client/server.
SSP's Mr. Lebowitz believes that EDS is well positioned to provide such an integrated technology solution.
"EDS is developing a unique position as a technology supplier to the industry," he said. "While most technology vendors compete on features, EDS will compete on performance. If they execute their strategy well, they will have a great impact on the industry."
One of the areas that EDS is targeting for enhancement is loan origination. Although processing of loans is largely moving to an electronic environment, the use of automated channels for the sourcing of the applications themselves has not yet gained momentum, Mr. Walker said.
Usually applications come from loan officers, who, like car salesmen, are paid in a way that encourages them to get the most money from the consumer. Such an arrangement does not work with the customer's best interest in mind, he said.
EDS views technology as an alternative way to get loans into the pipeline, possibly bypassing loan officers altogether.
The company is developing origination applications for a number of technologies, such as interactive television, interactive kiosks, on-line services, and mobile computing, giving consumers a variety of access points to begin the lending process and shop for the best deals. Such technology could wind up boosting the volume of loans.
Through interactive television, for example, consumers will be able to sit in their living rooms and apply for mortgage loans, shop for best rates, and request information on houses, said Mr. Walker.
The company is working on this application through its home banking endeavors with Interactive Transaction Partners, a home services company jointly owned by EDS, US West, and France Telecom.
Another access point the company is developing is the interactive kiosk. EDS has already designed a prototype touch-screen kiosk that allows customers to shop for houses of a particular size and price range by viewing on-line tours, led by real estate brokers, of selected homes.
Mr. Walker was uncertain as to when such kiosks would be deployed, but he envisions them being placed in malls, airports, and other locations.
The use of the Internet and major on-line services will also play heavily into the mix of access channels, he said.
Using a process called computerized loan origination, or CLO, mortgage lenders would feed their programs and rates into a central transit point on the Internet. Realtors, financial advisers, and other sources of loan referrals would then be able to access the information to shop for the best rates for consumers, perhaps getting bids from various mortgage companies.
Tied into this channel will be mobile loan officers. While there is nothing new about loan officers using laptops to originate loans at the point-of-sale, "we haven't seen anyone that actually connected them to the Internet," to shop for the best deals, said Mr. Walker.
By using these technologies at the beginning of the pipeline, EDS hopes to cut the time it takes to originate loans from 30 to 60 days to three to five days or less, he said.
He added that banks need to take advantage of their affiliation with or ownership of mortgage companies to improve cross-selling between mortgage and banking customers.
He envisions originators selling, not only mortgages, but also credit cards, home equity lines of credit, car loans, and other financial products.
Providing alternative entry points into the pipeline, combined with access to other financial products, will improve profitability of lending institutions, he said.
