Florida-based Alltel, the veteran behemoth among the country's mortgage servicing companies, is joining forces with upstart Data Track Systems to bring seamless electronic mortgage transactions nearer to reality.
Alltel's Information Services-Mortgage Division, through an alliance with California's DTS, for the first time is offering clients electronic access to title insurance carriers, in addition to its range of front-end options.
"We have had a critical mass in originations, but we have not concentrated on closing services," said Rob Lee 3d, Alltel's senior vice president of front-end system/ interchange. "They have made a great deal of progress in linking title companies to one single point."
This combination of operations will reduce the time needed for each company's clients to close mortgage loans. Both companies yearn to have the entire mortgage process automated, which could reduce closing time to as little as two days or even less, said DTS president Gilbert Barnes.
That won't happen for years, however, as available technology still must overcome human resistance and further penetrate the marketplace, Barnes said.
In the meantime, Mr. Lee said, the companies' electronic equipment is compatible, and they will be offering each other's clients entree to an enlarged, high-speed electronic data interchange (EDI) to track the mortgage procedure from origination to insurance. The service can be obtained on-line.
The three-month pilot alliance is scheduled to end March 31, but Mr. Lee suggested the relationship will continue. "It looks good for going forward," he said.
Alltel began watching DTS' efforts almost from its inception in 1994 in Carlsbad, Calif., as an electronic provider of access to title companies. It was only a matter of time before the two got together, Mr. Lee said. "It was always in our plan to get into that," he said, but the company decided it could do so more cheaply and quickly by allying with DTS.
Despite Alltel's image as a high-powered, highly automated provider of mortgage-related services because of its front-end prowess, its clients obviously were forced to resort to low-tech, time-consuming methods - including using phones, faxes and couriers - to ferret out title insurance for borrowers.
Alltel used a highly automated system for front-end services including loan origination, employment and income verification, credit reports, property flood-plain conditions and appraisal.
On the origination side, Alltel's clients operated in a sort of space-age wonderment, but on the closing end they were muddling in the dark.
"But now a title insurance company can call up and get all these things simultaneously, too," Mr. Barnes said. "Alltel had a large suite of EDI offerings, and title insurance was the missing piece."
Conversely, a mortgage banker operating under "old-fashioned" conditions who sought to make a loan in a certain market may not have even known of a title company in that market, causing the lender to call on an insurer somewhere else, said John Mann, DTS' executive vice president for sales and marketing.
"Now, through EDI a mortgage banker can automatically select a vendor who is operating where the loan was made," Mann said, "and the title company may not have even heard of the lender until they were contacted."
Alltel's push into automated title insurance is part of its overall expansion of value-added services. Those revenues offset income lost because of consolidations among mortgage bankers.
When two clients merge, Alltel most likely will receive a reduction in revenues from the surviving entity, because pricing is based on a sliding scale that depends on the number of transactions incurred by each client; as volume increases, prices decline. Therefore, more total revenues would have been generated from the original two companies.
Although Alltel asserts that consolidations among lenders are not driving the company into expanding value-added activities, its executives acknowledge that these operations compensate for revenue losses in mortgage servicing.
Even though the Alltel-Data Track relationship is a big move toward developing the entire mortgage exercise into a fully electronic procedure, achieving that goal will take some doing. "There are still a few bottlenecks," Barnes said.
One is that many investors who purchase mortgage-backed securities will not accept digitized signatures and notary stampings on electronically transmitted documents, Mann said.
But a more formidable barrier is the country's thousands upon thousands of county recorders and clerks, most of whom exclusively use paper when registering deeds, Barnes said.
Even if they all were inclined to automate, he added, "they face budgetary issues. This could be a significant cost on the county level."
One possible strategy is for lenders and title companies to enter into joint ventures with local governments to help them pay for the necessary desktop computers, Barnes said.
Mr. Mann, however, predicts that everything will be solved when Fannie Mae and Freddie Mac opt for electronic transmissions. "Once that happens, the rest will take care of itself," he says.
When will that come to pass? "More than two years out," he said.