Washington Mutual Inc., the nation's largest thrift, has begun to deploy its mortgage origination system in the vast network of home loan offices it has purchased over the last 15 months.
The move is critical to the Seattle thrift's efforts to integrate its purchases into a single franchise and unleash their market power.
Through its purchase of American Savings Bank, Irvine, Calif. in 1996, and Great Western Financial, Chatsworth, Calif., last July, Wamu, as it is known, has quadrupled its assets (to $97 billion on Dec. 31). It also has emerged as the third-largest mortgage investor, after Fannie Mae and Freddie Mac.
Wamu's aim is to establish itself as California's leading mortgage lender, as well as a national player. But loans made through its California purchases are twice as expensive to originate as those Wamu makes in the Northwest. Neither American nor Great Western used an electronic origination system.
"In order to hit the revenue-enhancement and cost-cutting goals they have set" for the acquisitions, Wamu has "to have the technology in place," said analyst Thomas O'Donnell of Smith Barney.
"You have to remember that American was a very traditional thrift," Mr. O'Donnell said, as was Great Western, despite its efforts to become more bank-like.
Despite Wamu's track record of successful consolidations, some questioned its ability to digest so much so quickly. But so far, at least, naysayers have been proven wrong and Wamu has avoided the spectacular failures of its San Francisco-based neighbor, Wells Fargo & Co.
First in line for Wamu's system have been the mortgage offices and wholesale outlets of American Savings Bank. The rollout began in February and was completed earlier this month. The offices are in California, Colorado, and Arizona.
In May, Wamu will deploy the system in the California mortgage offices of Great Western Bank. By August, Great Western's mortgage offices throughout the Midwest and on the East Coast will use it, according to Steve Freimuth, executive vice president of lending administration at Washington Mutual.
Retail branches will be fitted with the system if they originate a high volume of mortgages, Mr. Freimuth said. Only some of Wamu's Northwest branches use the electronic origination system.
Called LoanWorks, Wamu's proprietary system has been used to originate 90% of Wamu's mortgages in the Northwest for the past 18 months. On average, it costs $1,400 to make loans of $130,000 to $140,000, Mr. Freimuth said.
Developed with help from IBM, Wamu's system relies heavily on analyzing the borrower's credit history, and is tailored to Wamu's credit standards for a variety of loans that aren't sold to mortgage giants Fannie Mae and Freddie Mac.
Among these are jumbo mortgages, which exceed the $227,150 ceiling on purchases by Fannie and Freddie; low-documentation loans; and many different kinds of adjustable rate loans.
Most of Wamu's mortgage investments, which totaled $77 billion on Dec. 31, carry adjustable rates.
"People get lost in the detail and forget about the primary indicators of credit," Mr. Freimuth said. "We look at the macro approach to underwriting."
Jeff Lebowitz of SSP Associates, Chevy Chase, Md., said developing a proprietary technology has certain advantages for a lender.
"They can design any special functionality that they want. They can build it with the programming languages they already know well, (and) they can make it as scalable as they like," Mr. Lebowitz said.
The downside is that such systems are more expensive to refine over the years, because the cost of innovations isn't spread over many customers, Mr. Lebowitz said. They can also be more expensive to maintain, he said.
But Mr. Freimuth at Wamu maintained that "working with IBM makes updating the system easier and less expensive."
At Wamu, loan officers use the origination system to help borrowers compare payments and closing costs on different loans. Once borrowers decide which loan is best, officers can fill out a loan application, get a credit report on-line, and produce a score of the applicant's credit from a detailed mathematical model.
If the borrower has another loan or an account with Wamu, the system automatically fills in details such as the borrower's address, telephone number, and employer information.
The system also allows the loan officer to electronically order an appraisal, title insurance, private mortgage insurance, and flood insurance, all previously manual procedures.
Since it began using the electronic system, Wamu has eliminated up to 80 documents that it previously required to support a mortgage application, including explanations of credit blemishes, Mr. Freimuth said.
Wamu has also streamlined its appraisal process. All properties are still physically inspected, in some cases just on the outside, and costs have been cut by half. This is a cautious approach; other big lenders are moving toward electronic appraisals wherever possible.
Wamu's mortgages are made more quickly-in five days instead of a month. That cuts costs for Wamu; it also wins business, Mr. Freimuth said.
"There's a high anxiety in purchase transactions" as borrowers wait to see if their mortgage application is approved, Mr. Freimuth said. Sometimes borrowers fill out more than one mortgage application as they shop around for approval.
"Whoever gives that answer quickest usually wins," Mr. Freimuth said.
"We're shooting for 50% auto approval based on credit scoring," he said. Those loans can be approved at branch level.
Others are electronically shipped to an underwriter, who transmits a decision back to the branch the same day.
