With an eye on reducing paperwork and speeding up lending, the Federal Housing Administration (FHA) has launched a system that allows lenders to perform necessary communication tasks over the Internet, replacing slower dedicated networks and telephone systems.

The new system, FHA Connection, is an effort to smooth the FHA process. "If you reduce the friction, you reduce time; if you reduce time, you reduce the cost," says assistant HUD secretary and FHA director Nicolas P. Retsinas.

The Internet system, which will make electronic transactions mandatory by Oct. 20, replaces a system where lenders used private networks, automated phone lines or the postal service to interact with the agency. Now lenders can do almost all of their required transactions over the Internet.

Colorado-based Pulte Mortgage Corp. has been using the system since March, finding that the cost and time savings are significant. "The major advantage is the speed of the information,'' says Sue Hart, director of national subdivisions at Pulte. "A network connection that used to cost $2,600 a month has been replaced by a $20 per user Internet charge."

One problem has been that the site sometimes cannot handle all the users, Hart says. And Pulte officials worry about security. "I'm not sure how secure the system is...but I don't know that there is anything we can do about it until somebody hacks the system and messes it up."

Some lenders may stick to private networks out of concerns for security and employee Internet access, says Steve O'Connor, a Mortgage Bankers Association spokesman. Retsinas says the agency has adequately addressed these issues with identification numbers and passwords assigned to lenders.--sausner tfn.com

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