Daniel T. Stone finds himself between a rock and the Internet.

Mr. Stone, a vice president for secondary marketing and the wholesale division at MGM Mortgage Co. in Orange, Calif., says about 40% of MGM's loan officers operate out of realty agents' offices, where they are expected to gain an edge in making loans as homes are sold.

But thanks to Internet technology, real estate brokers are undercutting that strategy, using Internet services to broker loans themselves, Mr. Stone said. They "want to have a little control of not only the sale of the home but the loan transaction. And they want to take a piece of the pie," he said.

At a Mortgage Bankers Association secondary market conference last week, Mr. Stone and others from smaller mortgage companies said they are being squeezed by the new technology.

Though some complained of the new competition from real estate brokers, others said they are at a disadvantage against larger lenders whose technological clout has enabled them to form alliances recently with Fannie Mae and Freddie Mac. The big players, ranging from Norwest Mortgage to Countrywide Credit Industries, have developed their own underwriting systems and have negotiated special arrangements to sell most of their loans to one or other of the secondary market mortgage giants in exchange for the right to use their own systems.

Angelo R. Mozilo, chairman and chief executive officer of Countrywide, defended the deals as benefiting the consumer. They "put everybody on the same side," he said.

Countrywide's partnership with Fannie Mae, announced July 9, has "given us a lot of flexibility to grow faster, to leverage ourselves better," Mr. Mozilo said. As a result, lenders like Countrywide are now viewed more as "partners rather than adversaries" by Fannie and Freddie, he said.

But smaller mortgage bankers expressed concern. Kemper Elliott, who runs Vintage Funding Inc. in Walnut, Calif., said he is trying to sell his loans to Fannie Mae but fears that he will get "less attention, less service, and higher pricing" in the alliance era.

Though he may be competing with the smaller mortgage banks, Mr. Mozilo sounded a general alarm about the melding of mortgage broker and real estate broker functions.

"They want to take advantage of the fact that they are at the point of sale" and technology enables them to do this, he said. "I don't see it as beneficial to the consumer," he said, portraying realty agents as motivated by a desire to increase revenues.

Mr. Elliott said smaller players need to integrate the real estate and loan brokerage functions. He has an ownership stake in a California realty company that provides "a way to grow" in the mortgage business. "I need to be scrappy and capable of moving in the market because of my size," he said.

Meanwhile, Internet technology has proven more of a boon to the bigger players, those at the conference said. Smaller mortgage bankers said that for them the Internet remains a tool to disseminate information rather than originate loans.

In contrast, Countrywide's Internet presence is producing "more and more direct activity" and will play a role in both production and servicing, Mr. Mozilo said.

He predicted that in three years 55% of Countrywide's branch originations will come from the Internet.

But he said branch growth would continue unabated to accommodate the company's two-pronged strategy: "high-touch, low tech" for customers whose hands must be held and "high-tech, don't touch me" for the growing population of Internet-savvy homebuyers.

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