Many depository institutions, particularly commercial banks, have become tired of supporting a home loan origination function that doesn't generate enough revenue to cover the costs, let alone earn a reasonable return.

At the same time they want to avoid having to say no to customers, which is why they have been putting up with the cost burden as long as they have. So what can they do?

One option is to turn this function over to a mortgage banking company, for which the marginal cost of servicing the depository's customers is a small fraction of the cost to the depository. Then the depository avoids the support responsibility while its customers are still served.

If you are considering this approach, you should understand the potential hazards:

*Your customer deals with an employee of another company, who is not accountable to you for the quality of service provided.

*You may find that not only have you given up home loans, but you are losing home equity loans as well.

*A mortgage banking company is dependent on the ability to sell loans in the secondary market, which limits its capacity to make idiosyncratic loans as an accommodation to highly valued customers.

*Even on nonidiosyncratic loans, the number of separate niches recognized by the marketplace today is vast. In a recent study, I identified 7,500 separate niches defined by loan types, loan options, loan size category, loan purpose, and property type.

*The mortgage bank to which you turn over your customers will view the deal as a shield against the cutthroat competition it encounters in other market segments, which is why mortgage banks value such a deal so highly. Your customers will not necessarily get the best prices available.

*The mortgage bank may provide better service to offices that generate sufficient loan volume to justify a full-time resident loan officer. But most branches do not generate this kind of volume, and it is very unlikely that the mortgage bank will serve customers better than you are doing now.

There is another option you should consider: become a point of sale user on a multilender mortgage network. Then you would have access to multiple lenders of your own choosing, which compete for loans while collectively serving the largest possible number of market niches.

Your customers would receive a high-quality service from your employees, at any of your branches. Yet you could still get rid of most of your home loan infrastructure.

Here is the way one such network operates. Others may differ in minor or major ways.

First, major national and regional lenders who have joined the network offer their loans to various users at the point of sale, including real estate brokers and depositories. These lenders define their loan programs in detail, including all the niches in which they offer loans, qualification requirements, mortgage insurance requirements, and so on. This information is sent electronically to a central clearinghouse, and prices are updated every day.

Second, any point-of-sale user can download onto the user's computer the products of all network lenders that have authorized that user to offer their products. This means you could choose the lenders currently on the network with which you wish to do business.

Further, the network is open, so you could invite any lender to join, perhaps including the one with which you were contemplating an exclusive arrangement.

Third, one of your employees would be trained to be a loan counselor at each of the offices at which the service is offered. The employee would make a local phone call each morning to download prices from the clearinghouse.

When a customer came in, the employee would counsel, qualify, select a product, register the loan electronically with the lender selected, and take the application, delivering it electronically to the lender.

The designated lender would process the loans while daily providing status information electronically back to the point of sale until the loan closes.

Fourth, high-powered counseling is part of the networks' stock in trade. Your counselor can easily find the right product for the customer, answer any type of "what if" questions, and deal with any concerns.

Next: Earning an attractive return.

Mr. Guttentag is president of GHR Systems Inc., Wayne, Pa., developer of the Mars Independent Network.

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