Mortgage bankers are building and buying front-end origination systems in a frantic effort to grab - or hold - a competitive advantage.
The rush to invest in new technology reflects a widespread realization among mortgage bankers that only new systems will be able to fulfill their goals.
Mortgage-industry officials say the need for speed in loan originations and control of the point-of-sale is the key to immediate success.
And with competition fierce, lenders' long-term success will hinge on "electronic channels of the business," said Stanford L. Kurland, president of Countrywide Funding Corp.
The Internet or interactive television could be the consumer's "primary access to the products," he said, adding:
"What is interesting about innovations in those technologies is that you can then link into a lot of other services," such as credit bureaus, appraisal companies, and automated underwriting systems.
Loan originations involve several consumer-controlled processes, including lender selection, submission of personal information such as Social Security numbers and employment history, and determination of loan rates, terms, and points.
Borrowers of the future will be able to go to an institution's home page and call up listings of homes for sale online, complete with photos and details of the neighborhood - all with no human contact.
If interested, prospective buyers might then enter relevant personal information, then "automatically our system is ordering credit and appraisal reports before it has even touched an individual," Mr. Kurland said.
"The Internet is developing, and it's only a matter of time before everyone is using it," he said.
But even as the Internet grows, its prominence represents only a piece in the large and complex mortgage-origination machine. Lenders say the crucial technologies in this area involve electronic data interchange, workflow management, and automated underwriting software.
John Saelens, vice president of Data-Link Systems, a South Bend, Ind., subsidiary of Fiserv Inc., believes automated underwriting "is the most important piece that affects the front-end origination side of the business.
Workflow-enabled systems continuously judge which credit bureau, title insurance company, mortgage insurance company, and/or other in-house computer applications loan applications are contacted and when.
Countrywide's total systems development budget for fiscal year 1997 is $28.2 million. Mr. Kurland said it was devoting major resources to "workflow-enabled or task-centric systems,"
"It's just less sequential in terms of a person coming in and managers asking questions, and filling in information on the application." Mr. Kurland said. "Future generations of systems will actually know when those tasks have to be done."
Working closely with workflow management is electronic data interchange, which is the formatted exchange of documents over telecommunications lines. Computers receive and act on information in an automated fashion, thereby streamlining much of the manual, labor-intensive tasks. It replaces the need to send faxes or mail.
Nearly all credit reporting and appraisals at Countrywide - and increasingly other lenders - use some data interchange software.
"To get speed, we need connectivity," said Tony Skipper, a manager of systems development at United Guaranty Corp., Greensboro, N.C.
EDI links to such automated underwriting systems as Fannie Mae's Desktop Underwriter and Freddie Mac's Loan Prospector must be completed "while brokers are sitting there talking to borrowers and taking in their loan applications," Mr. Skipper said.
Other uses of technology on many mortgagors' minds are laptops. The 1994 Mortech study sponsored by the Mortgage Bankers Association of America estimated that 25% of lenders used laptops, with an expected 80% increase by the end of this year.
Laptops extend the reach of brokers and lenders in the market through visits to prospective home borrowers at work or home. Lenders are also working on linking laptop-based systems to back-office processing centers.
Coupled with fax modems and portable printers, sales representatives in the field can produce printed forms for signature. Systems developers are also working on wireless fax modems to avoid inconvenient unpluggings of prospects' telephones.
"We use laptops, and I think it works out to be very convenient and impressive methodology," Mr. Kurland said. "I think it will be very commonplace."
Countrywide is the largest servicer in the country, servicing about $134 billion in loans. And until Norwest's pending merger of Prudential Home Mortgage's assets is complete, the Pasadena, Calif.-based institution is considered the largest originator, generating roughly $9 billion per quarter.
Although the largest lenders have built premier loan origination systems, others major players might not "necessarily be there yet," said Barbara Smiley, a technology analyst with the Tower Group, Wellesley, Mass.
She said Fleet Financial Corp.'s recent announcement to pour some $40 million into new mortgage technology, has garnered much attention on systems usage. Fleet is working with systems integrator Andersen Consulting.
"That's a fair piece of money," Ms. Smiley said. "What they acknowledged when they announced it was they had not been keeping up to date."
Large lenders typically will build their own systems in-house because a major concern with installing popular origination systems from Alltel, Interlinq, Gallagher or Contour is the level of support they will need.
Mr. Kurland said he has, "from time to time," considered purchasing off- the-shelf systems, but Countrywide has almost always resorted to building its own.
Lenders can choose from perhaps as many as 90 origination vendors now on the market, but only a "handful really have an understanding of the mortgage process," said Leilani Allen, a mortgage technology analyst with Tenex Consulting, Mass.
"A lot of it is just schlock," she said.
Only a fraction play a dominant role in the business, Ms. Smiley agreed. What's more, because most vendors offer non-Windows applications, the many upgrades to Windows and PC-based systems are proving to be "distractions" to vendors,
Windows development diverts attention from the bigger picture - building the next generation of fully integrated, workflow-enabled and EDI-capable systems. But Ms. Smiley noted that vendors are simply addressing customer demands for graphical user interfaces.
"I think the move into Windows was something that vendors could not afford not to do," Ms. Smiley commented.
Although vendors can't be "all things to all people," Data-Link's Mr. Saelens pointed out that his company's recently launched Unifi system, a two-year-long development, claims workflow processing, EDI capabilities, and interfaces to underwriting systems in a Windows-based environment.
He said First Financial in Wisconsin is using it to process loans, while Boston Federal and Sovereign Bank, in Pennsylvania, are installing it, and has stirred much interest among other large institutions.
Still, despite all the options lenders can choose from, Mr. Kurland said there are "many bad technology decisions that have to be avoided," such as developing more exotic point-of-sale systems, like video conferencing.
"I think that's a technology that will be routine in the future," Mr. Kurland said.
"I consider it to have very little value - and it is not something we should pioneer."