The scramble to stay atop the growing technological cyber-mountain has become a major effort for mortgage lenders, many of which not so long ago were indifferent to technology.

But one thing has not changed: lenders are focused far more on bringing in business than on controlling costs. "They are still more concerned with the top line than the bottom line," said Jeff Lebowitz, co-author of the annual Mortech survey published by SSP Associates, Chevy Chase, Md.

Thus, automation of originations, along with the use of the Internet, have dominated technology talk during the past year, even eclipsing Year- 2000 compliance, an issue that primarily affects loan servicing and appears well under control at the larger lenders.

In any case, spending on mortgage technology, though it flattened last year, has grown steadily as increasing numbers of lenders have automated or upgraded their systems.

Douglas Duncan, a senior economist at the Mortgage Bankers Association of America, said the rising outlays for technology should mean more cost efficiency, but only if the technology is being utilized correctly.

"There was a period, 1992 to 1996, when companies were wrestling with the issue of whether or not they could invest and achieve economies of scale with the technology that was out there. Most of the companies that executed that technology incorrectly are out of the business at this point," Mr. Duncan said.

"I feel that most midsize companies that couldn't compete technologically have already gotten very lucrative bids for their servicing portfolios and have gotten out that way."

Mr. Duncan said very few midsize to small lenders can stay in business without purchasing or developing software, or partnering with technology companies. The few that remain must have a high level of management skill to execute production efficiently, streamline overhead expenses, have a higher-quality employee base, and be able to replace runoff with originations, he said.

While Internet originations are only a drop in the bucket so far, use of the net is getting a lot-some say a disproportionate amount-of attention because of lender preoccupation with building volume. Some even believe the future of real estate and mortgage brokers hangs in the balance as Internet lending becomes more prevalent and consumers become more savvy about buying and financing their homes.

There is no question that Internet volume is growing fast, though from a small base. Research by Deutsche Bank indicates that on-line origination of $4.3 billion in 1998 represented less than 0.3% of industry volume. It said mortgage banks have been slow to adapt to the technology, thus allowing a new breed of solely on-line lenders to grab an early lead, providing $3.5 billion of the on-line volume.

Forrester Research, a technology research company in Cambridge, Mass., predicts that on-line originations will account for almost 10% of the market by 2003, up from an expected 1.5% this year.

Off-line, or traditional, mortgage lenders have been fragmented and have experienced difficulty building national brand names.

Deutsche Bank reported that Norwest Mortgage did $55 billion in originations in 1997, ranking it first in lending volume, but that amount only accounted for 6.5% of national originations.

The bank added that 35,000 to 40,000 companies are offering mortgages in the United States, compared to a handful of on-line lenders.

Monterey Coast Mortgage only originated 650 loans last year for about $130 million, but Shawn Quinn, a mortgage broker at the company, said he does not feel threatened.

"Internet mortgage lenders get a lot of applications in their pipeline, but they also get a lot of fallout. They are spending tons of money on advertising to attract business, so they are having to increase their price markup," Mr. Quinn said. "On-line lending also makes it harder for brokers to get higher price markups; it is stopping brokers from overcharging. It's hard to make more than 1% on loans."

Mr. Quinn said being a regional lender in Monterey County, Calif., population 300,000, has put the company into a niche because, "people want to do business with people they know," and less spending on technology may be an advantage.

"We have been able to match or beat prices from quotes of companies like E-Loan and Countrywide and we do advertise as such," Mr. Quinn said. "At this point, I am not concerned that it will cost me more to push a loan through because I'm just not spending millions on advertising my technology."

He said the brokerage and realty roles were not in jeopardy.

"To start, calls because of low rates are going to disappear sometime, and we (brokers) are going to have to depend on Realtors again," Mr. Quinn said. "With the Internet, consumers get the chance to quickly shop for rates so when they come to us they are a little more educated. But they still come to us."

The QuickenMortgage site, run by Intuit Inc. of Mountain View, Calif., brokered $600 million in closed loans in 1998. Alison Berkley, group product manager, said traditional broker roles would evolve in future years.

"Traditional brokers have made a business out of charging over 1% or 2% and that will go away because the Internet has made it much more transparent to consumers exactly how much they are paying for a broker service," Ms. Berkley said. "We put out a higher performance standard in terms of quicker turnaround time and less variability. The market share will just shift to players that can adapt faster and have more flexibility."

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