Progress is not the logical, linear accumulation of knowledge. It is a series of peaceful interludes punctuated by intellectually violent revolutions."

This was the premise of Thomas Kuhn's "The Structure of Scientific Revolutions," a book I read in college almost 30 years ago.

Mr. Kuhn's analysis came to mind recently when I was reminiscing with a banker friend about the mortgage business. We talked for quite some time about how far we had come-and how far we have to go-in giving the borrower a positive experience when he applies for a mortgage.

When my friend and I started in the business 20 years ago, mortgage borrowers were given few choices. Securitization was confined to a very limited Ginnie Mae market, and all loans were for 30-year, fixed-rate terms. There were no adjustables, no 15-year loans, no intermediate-term loans. Rebate pricing did not exist, and borrowers typically paid loan fees of 2.0 points. As unpleasant as it is getting a mortgage today, it was even worse then.

Mortgage bankers could not really underwrite their own loans. If you wanted to sell a loan to Fannie Mae, you literally mailed it to them and then waited, usually several weeks, for their underwriters to approve or deny the loan.

Today, a borrower might wait two to three days to see whether his loan is approved. Twenty years ago, that took two to three weeks. Most important, there was no automation until quite recently.

Think about what the lack of automation meant. Applications, verifications, and all other forms were done on manual typewriters. White- out was not allowed on most documents, so processors worked very carefully and slowly. The smallest mistake meant retyping the entire document.

If you came of age before word processing, you remember how horrible this was. If you are under 30, this manual way of doing things must seem incredibly ponderous. Trust me, it was.

Thinking back to Mr. Kuhn's scientific revolutions, and indeed all forms of progress, the "peaceful interlude" of the mortgage business lasted most of this century.

The advent of the insured mortgage in 1935 was a big change that turned the United States into a homeowning nation. Securitization in the early 1980s turned mortgage pricing into a more commodity-like process. Still, none of these changes had the effect of an "intellectually violent revolution."

Not until 1994 did the first dramatic paradigm shift in the mortgage business occur with the introduction of automated underwriting engines such as Freddie Mac's Loan Prospector and Fannie's Desktop Underwriter. Recently, a number of dot-com companies have done a good job of helping the consumer search the Internet for the best rate and apply on-line. Unfortunately, this does not go nearly far enough in giving the consumer a positive experience.

It is not enough to allow the borrower to shop on-line for rates. It is not enough to allow for on-line applications. The revolution will be won only when the borrower can rate-shop, apply, and be approved in nanoseconds.

What good does it do to have the borrower shop for rates in Internet time, apply in Internet time, and then have the processing of paperwork take days or even weeks?

As we move toward the new millennium, it is apparent that automated underwriting is merely a prelude to the ultimate borrower experience, including on-line mortgage applications and direct access to automated underwriting systems in Internet time.

With a fully automated mortgage process, the borrower will be able to bypass loan officers, processors, and underwriters. This new system will leapfrog over the ponderous manual processes built up over the past 100 years. Once this happens, once a borrower can apply on-line and get a nearly instantaneous underwriting decision, the revolution will largely be over.

There will be further refinements, but this ability to apply and be underwritten on-line will be the final scene in the painfully long and drawn-out process of getting a mortgage. Then getting a mortgage loan will be as easy as getting a credit card or car loan. The need for massive numbers of processors and underwriters will fade away. The days of paying out almost all the profits to loan officers may become a distant memory. And lenders will no longer be ceding their valuable franchises to mortgage brokers.

That day is fast approaching. There are over 50 million Americans accessing the Internet, yet fewer than 1% of all mortgages go through the Web. There seems to be a consensus that within the next several years, as many as 20% of all mortgages will be done on-line. Bankers who not only acknowledge but also embrace this change will be the big winners of the future.

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