NEW YORK - Online mortgage origination will never be the predominant medium borrowers use to obtain loans, Fannie Mae chairman Franklin Raines said Tuesday.
Speaking at the Forrester Finance Forum here, Mr. Raines said the Internet is just "one channel" and that some dot-com companies severely limit themselves by limiting originations to the Web.
There will always be other mortgage origination channels, Mr. Raines said, such as mortgage brokers, retail outlets, financial advisers, and other trusted intermediaries. Further, borrowers will always require some degree of hand-holding, he said, and a fully automated process is not conducive to that.
Turning to other topics, he said his company's corporate alliances are vital for research purposes.
"We don't compete with our lenders; we don't deal with consumers" and "we have no ambition to deal with consumers;" he said, adding that Fannie has "no skill" in dealing directly with borrowers.
To the contrary, the government-sponsored enterprise has to make sure its lenders can compete, he said. "These days, there are a set of lenders aligned with Fannie Mae and a set of lenders aligned with Freddie Mac. If a Freddie Mac lender gets the loan, we know we are not going to see it. We have to find a way to make a Fannie Mae lender win."
Mr. Raines had more to say about online mortgage lenders, arguing that they "need to be linked to a real business." Some pure-play Web lenders started to buy traditional mortgage companies but "began to learn how bad the business is and how much you have to invest over what period of time."
These lenders "had an element that would be far better than in the existing world, but they didn't have the whole process," Mr. Raines said. Most of these firms - particularly those involved in the mortgage business - did not work because they connected into a "clunky" back-end process.
Online lenders that failed, he said, had too little time to overcome resistance to the new ways of business that their technologies represented. He gave Fannie Mae's DeskTop Underwriter as an example. Though automated underwriting lowers costs for lenders and has made loan originations more efficient, he said, "it took us years" to get lenders to use the system.
Mr. Raines said that perhaps 20% of borrowers are comfortable using the Internet to originate a mortgage and that another 20% are willing to give it a try. But he added that "there are lots of consumers who have no intention of going online" even though "they don't mind that their broker is online or someone else."
