Mortgage bankers who continue to rely on branch office sales could face extinction, the head of a leading mortgage company has warned.

"You have the makings of a major paradigm shift. The paradigm is distribution, and consumers are indicating it's away from face-to-face" lending, said Thomas H. Mann, president and chief executive of GE Mortgage Co.

Consumers are becoming much more comfortable doing business by mail, phone, and through the Internet, Mr. Mann said last week at the Eastern Secondary Mortgage Conference in Raleigh, N.C.

The conference was sponsored by the Community Bankers Association of North Carolina.

Lenders who insist on being bound to brick and mortar face a "disconnect" with customers on which other companies will capitalize , Mr. Mann said.

And the new mortgage titans, he said, "may well come from outside our industry," in the form of other financial service providers or telecommunications firms.

"None of us - we at GE included - seem to know where technology is taking us," Mr. Mann said. "But if you look carefully, I may suggest that customers may be giving us some important clues."

He said more and more households are adding personal computers, modems, and on-line services. At the same time, sales by mail through catalogues are booming. "In 1995 catalogue sales exceeded in-store sales nationwide," Mr. Mann said.

The statements struck a responsive chord with Thad Woodward, president of the Community Bankers Association of North Carolina.

"As we move forward our product will be basically the same," Mr. Woodward said. "But where we direct our efforts will be somewhat different."

Mr. Mann was making one of his first public appearances since taking the helm of GE Mortgage last May. He offered an unusual perspective, because he recently returned to the mortgage business after six years with a financing arm of GE.

Several areas in the mortgage industry, he said, " are in sharp contrast to what existed when I left, or are in sharp contrast to what I expected to find when I returned."

Among the changes: The mortgage industry has to deal with a lot more lawsuits and regulations. "I've been staggered by the amount of time I'm asked to spend on legal and regulatory matters," he noted.

On the regulatory side, Mr. Mann is "struck by the growing complexity of compliance."

But he is especially critical of all the litigation, much of which, he said, is unnecessary. "There are hundreds of suits pending on a variety of issues," Mr. Mann said. "My friends, the plaintiff's bar has discovered us. It's hard to visit customers when you keep bumping into your lawyer on the way out the door."

Lenders must be more proactive if they hope to profit in the face of so many challenges, Mr. Mann said. "We've got to start thinking about how we shape our future, rather than let it happen to us."

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