Franklin D. Raines sees a time when every mortgage will be tailored to the borrower's needs.

The chairman and chief executive-elect of Fannie Mae, the biggest buyer of home loans, said "mass-customization" will be the hallmark of his tenure atop the company, which officially begins Jan. 1.

Mr. Raines, who headed the company's technology efforts earlier in the decade and came back to the government-sponsored enterprise after a stint as director of the Office of Management and Budget, suggested Fannie Mae's technology focus will shift markedly.

Having harnessed technology to pare much time and cost out of the mortgage lending process, Fannie Mae says the next step will be to show consumers their alternatives and let them mix and match the features they want in a loan. By providing this "higher level of intelligence," he said, Fannie Mae should be able to help more people get home loans.

He and the current chairman and chief executive officer, James A. Johnson, said Fannie has already fostered reverse mortgages, which allow elderly homeowners to tap their equity, and low- and flexible-down-payment loans for those who do not have a lot of cash. Their goal is to build on that.

"If you have got somebody who is buying a house who expects to work for eight more years or 12 more years and then retire, why can't we shape a mortgage that works on that presumption?" Mr. Johnson asked. "If you've got people who expect extraordinary educational costs in the middle of a mortgage, why can't we shape something that in some way reflects those demands?"

Until recently, Mr. Raines said, the industry's approach has been to bend people to fit into established products. "We should bend the financial world to fit consumers," he said.

Mr. Raines and Mr. Johnson were in New York Thursday to officially usher in the new era of leadership at the company. Mr. Johnson, who took over a profitable company from previous chief executive David A. Maxwell, has focused on the mission of broadening homeownership.

In an interview at American Banker the two presented mass-customization as the natural next step for the company and for the mortgage market generally. They said they see no need to change the company's charter, which gives it a mission to provide liquidity for home mortgage loans.

"We've made a lot of investment in this decade in the tools" to build a customized mortgage, Mr. Raines said. "We will gradually expand our offerings to incorporate more and more of the marketplace."

Lenders agreed with Fannie's objectives, but said problems in the secondary market still need to be addressed.

"There has been a lot of customization going on to meet individual customer needs," said Saiyid T. Naqvi, president and chief executive officer of PNC Mortgage Corp., Vernon Hills, Ill. But "the requirements placed by the secondary market continue to be a challenge because of the heavy documentation involved," he said.

The insistence by Fannie and its rival Freddie Mac that lenders "use their particular automated underwriting systems" can be an obstacle to mass-customization, he added.

"To the extent it provides better opportunities for people to buy homes, that's good for all of us in the business," said Angelo R. Mozilo, vice chairman and chief executive officer of Countrywide Credit Industries Inc. in Calabasas, Calif.

"There's still a long way to go," he said. "There are still too many people falling between the cracks."

To reach more people, Fannie will have to work closely with lenders on the technological front. Mr. Raines' prior stint as Fannie Mae's technology czar should help.

While the speed of origination and underwriting has increased-helping reducing the average cost of mortgage origination to $1,900 from $2,700- service will be a key component of Fannie's business, Mr. Raines said.

"We have to give (lenders) the capability of serving consumers better," Mr. Raines said. "With all of the programs we have created, we depend on originators to sort people out.

Mr. Raines acknowledged the difficulties of providing the same level of service for every borrower. "It's easy to figure out what a highly credit- qualified, middle-class person in the suburbs would want." But home buyers are growing more diverse. Some want to make a down payment of 50%, some 3%, he said. Some speak English, some Haitian Creole. Some want a house in the suburbs, some a loft downtown.

Mr. Raines said that a significant broadening of the housing market has been a hallmark of Mr. Johnson's tenure, with minorities now representing 40% of the 69 million homeowners.

"There is a very broad understanding (among lenders) that the future pace of growth will be propelled by people who don't look like their traditional customer," Mr. Johnson said.

Fannie Mae's strides in the area of risk management will also tie into customization and expanding homeownership.

"One of the revolutions of the 1990s has been in loss mitigation," Mr. Johnson said. In previous years, the premium in "getting it right" was higher, but now "the cost of a mistake has been totally redefined," he said.

Though the incidence of default may go up as more borrowers are granted mortgages, Mr. Raines said, new loss mitigation techniques have eased the severity of each loss.

Fannie's combined credit losses for the years 1999 and 2000 will be less than in 1996, Mr. Johnson said.

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