By 2002 more than 80% of the top 25 mortgage lenders will accept mortgage applications on-line for immediate processing, Gartner Group predicts - and the rest will be losing market share fast.

The Internet is blurring lines in the mortgage market, letting brokers function as lenders, and has accelerated the commoditization of mortgages, the information technology consulting firm says.

Borrowers are comparing lenders and their products on the basis of price and perhaps little else, said research analyst Laura Starita, who wrote the latest study on the business by the Stamford, Conn., firm.

"Historically, there was such a requirement for hand-holding when getting a mortgage. It wasn't just the loan but also the service you got with it," Ms. Starita said. "With the Internet, a lot of that personal value added is blown out of the water."

Also, automated underwriting is making on-line lending much easier, she noted. Now price is all the bank controls, she said.

Though on-line loan originations totaled $4.2 billion last year, only 12% of banks have a Web presence, Ms. Starita said. And lenders still use the Internet mostly to collect customer information, which is manually rekeyed by a loan officer and processed in 24 to 48 hours, she said.

The real challenge is to completely automate the process, Ms. Starita said. "For the most part, existing systems just aren't doing that."

There are three business models for on-line mortgage lending: referral site, broker sites - such as E-Loan, FiNet and mortgage.com - and direct- lender sites.

The least viable is referral sites, Ms. Starita said. They will probably be consolidated with broker sites, which are the most viable, she said.

Broker sites, collect information from customers and originate loans on behalf of lenders, producing multiple revenue streams.

But despite the Internet's growing importance, "throwing out the physical branch model is probably not prudent," Ms. Starita said.

The Web is still a very immature delivery medium, she observed. "There were about 5.6 million Internet banking users at the end of 1998, which is not a lot in terms of consumer adoption levels."

In the foreseeable future, she said, the mortgage business will be "a hybrid, where lenders get to the customers anyway the customer wants."

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