Mortgage banking is on the outs nowadays. But Tower Group, the Needham, MA-based technology research firm, expects that more companies will gain an interest in the field over the next five years.

Tower, in a recent study, says spending by mortgage lenders on new technology will increase through 2005 and that lenders will spend nearly $249 million on Internet-related mortgage technologies. By 2005, U.S. lenders are predicted to spend $502 million on these technologies, a 15.8% compound annual growth rate.

For the year 2000, total residential mortgage origination is expected to exceed $1 trillion, and originations over the Internet will account for slightly more than 1.4% of that total.

That's a pretty small percentage and Tower thinks it knows why. "The online mortgage process remains cumbersome and often daunting for consumers," says Richard Beidl, director of Tower's new global mortgage research and advisory service.

Consumers have shown an interest in making online mortgage transactions, but the "right mix" has not yet been found, the study says. Fifty percent of U.S. consumers already use the Internet when shopping for mortgage rates, it found, so the Internet has been useful for consumers seeking loan product information and tracking rate trends. While the study indicates that more than 70% of consumers are willing to apply for mortgages online, Tower expects that by 2005, only 10.2% of mortgage seekers will actually end up applying over the Internet.

"As the Internet grows as a mortgage origination channel, customer service and personal interaction will play an increasingly significant role," says Beidl. "To meet consumer needs and expectations, mortgage lenders will need to strive for the right blend of high-tech and high-touch, integrated across all delivery channels, from bank branches and call centers, to branded Web sites and remote loan officers."


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