WASHINGTON - In the hush of his office at Fannie Mae, with its high ceiling and oak floors, Frank Raines is plotting a revolution.
His goal is to overthrow the inefficient, paper-intensive ways of the mortgage industry. Instead, he wants to install an industrywide computer system that electronically links all the market participants, including the Federal National Mortgage Association itself.
Fannie Mae's vice chairman is by no means the first in the mortgage industry to preach the gospel of so-called seamless processing. The industry has fretted for years about the paperwork that weighs it down.
But Mr. Raines, 44, is the most powerful figure in the industry to make technological improvement a top priority.
Since arriving at Fannie two years ago from Lazard Freres & Co., where he was a general partner in municipal finance, Mr. Raines has thrown himself headlong into the initiative.
Big Cost Savings Seen
If he succeeds, the entire loan origination process will speed up greatly. And, according to estimates by Fannie Mae, lenders could see their average cost of originating a loan fall by more than 50%, to $1,200.
Lower costs would be passed on to consumers, and also would make it easier for lenders and Fannie to increase lending for affordable housing.
Exactly what does Mr. Raines have in mind?
He wants lenders to bypass pen and paper and enter borrower information directly into computer, then share it electronically with everyone else who participates in the mortgage process.
Currently, such data is keyed and rekeyed more than a dozen times as lenders, insurers, appraisers, servicers, and others put it into their computer systems, which often are incompatible.
"The vision is ... simply - can you find a way to get information in digital form at the earliest possible date?" Mr. Raines said in a recent interview.
The system would then "keep it in that form and allow [participants] to use it for whatever purpose - origination, prospecting, underwriting, quality control, servicing, delivery, secondary marketing - whatever the purpose that they have."
The theory behind an industry system may be simple, but its execution is not, Mr. Raines has found.
"It requires standards across a lot of people who have different focuses," Mr. Raines said.
As the largest single participant in the mortgage market, Fannie Mae has tremendous' leverage as it proceeds with the project.
Chances are good that if the system is well designed, it will be widely used in the industry.
The company is now designing prototypes, and Mr. Raines said substantial pieces of the technology would be out in the next two or three years.
While the arch-rival Federal Home Loan Mortgage Corp. also is looking to eliminate inefficiencies in the primary market, it has no project comparable to Fannie Mae's.
"We want to have technology that is widely accessible to hundreds or thousands of people," said Fannie Mae's chairman, James Johnson.
"We believe the industry is at a point that it can make very substantial strides" in the use of technology.
Better technology will help Fannie's bottom line by improving the crucial link between Fannie and the banks, thrifts, and mortgage bankers who sell their loans to the company, Mr. Raines said.
A number of lenders, however, are concerned about how the technology system will affect the competitive dynamics in the industry.
Some, for example, worry that through its technology project, Fannie is actually preparing to compete with them in making loans directly to consumers.
These lenders point out that Fannie, in mapping out its plans, has been studying lenders' origination systems in minute detail.
Does Fannie really want to operate such systems itself?
Mr. Raines, for his part, said Fannie harbors no ambition to get into the primary market.
"I can tell you that since I've been here, we haven't spent five minutes talking about the relative benefits of being in the origination business," he said.
"What we know is the secondary market. We know the wholesale end of the business. We don't see what value-added we would bring in the origination end of the business, especially when the business has got all these thousands of competitors out there," he said.
Countrywide Sees a Threat
Meanwhile, giant lenders like Countrywide Credit Industries worry that Fannie Mae's technology will render their own innovations obsolete, or at least dilute their value.
Countrywide, based in Pasadena, Calif., has helped lead the industry in automating the origination and underwriting process.
Angelo Mozilo, Countrywide's vice chairman, is concerned that his company will lose the technological edge that it has fought for if Fannie brings out its own system.
""I thought I had made a solid investment" in technology, but now it doesn't seem that way, he added.
Once Fannie's system is in place, Mr. Mozilo fears, he will have to dismantle his own system to get the same advantages as his competition.
Mr. Raines delicately dismisses Mr. Mozilo's fears.
"I think there's some kind of romancing of technology as a permanent competitive advantage." he said.
It's How You Use It
What will count in the future is not whether you have technology, but how you use it, he said, as there's nothing to stop lenders from putting their unique on Fannie's system.
Fannie is designing a flexible system that will meet industry standards now being drawn up. (See accompanying article.) Loans generated on the system could be sold to both Fannie Mae and Freddie Mac.
But plenty of logistical problems lie ahead.
For example, mortgage servicers use big mainframe computers that manipulate masses of information about the same loans every month.
Originators use personal computers to plug in new information each time they make a loan.
Says Mr. Raines: "Typically, what happens is people say: I want the data in my way, only my way. And so you get a lot of fragmentation.
"How do you make your seamless approach fit all these systems that people have developed over the years?"
So will Mr. Raines succeed in putting out an industrywide system with Fannie's stamp?
At Freddle Mac, they're not losing any sleep.
"The mortgage industry is very, very old. It didn't originate overnight. It's something that can't be done in a short period of time," said Richard D. Bryan, executive vice president of operations at Freddie.
"I don't think you'll see just one or two utilities [industrywide computer systems] in this market. It's too large," he said.
But Washington lawyer Vernon E. Jordan Jr., a Raines fan, has been in the foxhole with Mr. Raines a couple of times in the past few years - first when they worked on the transition effort of Washington Mayor Sharon Pratt Kelly, and recently on Bill Clinton's transition team.
He's sure Frank Raines will come through.
"He will master it. He will complete his task," said Mr. Jordan.
"He's a strategic thinker. He thinks long and deep, and he's a solid doer."