Fiercely competitive lenders are demanding the most sophisticated software to speed the processing of loan applications.

"Thirty-five percent of 625 lenders we questioned are in the market for new origination software," says Jeff Lebowitz, a principal of the Chevy Chase, Md.-based market research firm SSP/RES Research, which surveys lenders and brokers annually.

The programs that mortgage bankers and brokers are demanding must enable them to interface smoothly with many third parties, such as credit bureaus, county deed offices and, very importantly, Freddie Mac and Fannie Mae.

In the past three years, mortgage origination software has undergone a sea change that is allowing lenders to quickly tap into and store vast amounts of information related to loan transactions. "They want more information but they want to close the loan faster," says Rick Bacchus, president of Associated Software Consultants, Middleburg Heights, Ohio.

The big change in software has been the switch to Windows. "The old Dos- based system had limited capacity," says Jim Milligan, president of the mortgage services division for Jacksonville, Fla.-based Alltel.

This resultant increase in speed and capacity is making the fight for loan originations more intense than ever.

"The days when you waited at your desk for the customer to come in are dated," says Jiri Nechleba, president of Interlinq Software Corp. of Kirkland, Wash., the industry leader with 20.7% of the installed customer base, according to SSP/RES. "If you don't go out to them, somebody else will."

This makes the laptop computer a critical tool in originations. When a loan officer or broker visits prospects at their homes or offices (or wherever customers choose), lenders' representatives can demonstrate suitable loan programs.

"This allows our clients to select products that borrowers are qualified for," says John Crowley, sales and marketing representative for Gallagher Financial Systems Inc. of Coral Gables, Fla. "You can tell the borrower we can, or we cannot, help you."

Of course, the loan process does not stop there. Up to that point, the lender has taken at face value the information the borrower has divulged, such as income, debts, and past credit history.

After borrowers agree to a loan product, lenders validate the data by checking with other sources, such as credit bureaus. "You want to see if there are any credit hiccups on the borrower that he didn't say anything about," says Mr. Crowley.

Appraisers are also notified electronically to evaluate the property the borrower seeks, and the property itself is checked out in public records. "Is the property in litigation?" says Chuck Welsh, senior vice president sales/marketing for Atlanta-based Fitech Systems Inc. "There may be a lien."

The process, through the loan's closing, may take two days to two weeks.

Software programs must be flexible enough to handle the quirkiness of some borrowers. For example, sometimes individuals with high net worths refuse to disclose their incomes, says Mr. Crowley.

Such quirks may cause Fannie Mae and Freddie Mac to turn down requests to buy the loans for the secondary market, forcing lenders to find other institutions to make the purchases. This may mean higher rates to the customers.

"Then the borrower may opt for a cheaper loan by agreeing to disclose his income," Mr. Crowley says. This change can be inserted so easily that little time is lost in the process, he adds.

Another key to these programs is "work flow." That means data must flow through the system so that everyone who works on the 14 or so steps it usually takes to process a loan is always aware of what to do on a timely basis. For example, when a prospect telephones to ask for a loan application to be mailed to him, the system should be informed about that.

"If he hasn't returned it in 10 days, you are alerted to make a follow- up phone call to find out why," says Fitech's Welsh.

While most large lenders have built their own proprietary systems, that may be changing because of the cost-efficient programs that vendors have been developing since the shift to Windows.

Mr. Welsh notes that his company is currently installing its newest program, Bravura, at Flagstar Bank, a unit of Flagstar Bancshares in Bloomfield Hills, Mich. "Developing and maintaining a system in-house far exceeds the cost of purchasing a system," says Paul Orlando, an assistant vice president for the bank who is overseeing the installation.

What also helps to make purchasing from the outside attractive is that many programs permit a certain amount of customizing. The program at Flagstar is being tweaked to allow the bank to hook into the Federal Reserve's fund transfer wire so that the institution may pay brokers or correspondents who originate loans on the day the loan is closed, Mr. Orlando said.

As the fierce competition among lenders continues, casualties are commonplace. And that is being reflected among the software providers, too, especially since their products basically perform the same functions, says Scott Cooley, president of Contour Software Inc., Campbell, Calif.

"It doesn't make sense for so many companies to supply the same thing," he says. Today, he adds, there are 12 viable software suppliers compared with 30 just three years ago. Consultant Lebowitz says there have been 35 consolidations in the past five years.

Associated's Mr. Bacchus says that because of the similarities of many programs, technical support to customers has become vital as a competitive factor. He says his company's 800 telephone number is staffed 24 hours a day by at least one person.

"There hasn't ever been a voice mail here," he says. Many of his competitors have adopted similar policies.

Looking forward, many industry executives are trying to figure out how to take advantage of the Internet in a meaningful way. Most of them say, however, that it will not happen anytime soon.

"It hasn't taken off to the degree some people had expected," says Jiri Nechleba, chief executive of Interlinq. He concedes that technology fans will be attracted to using the net but other than that group he sees little interest.

For one thing, security is a major issue. "There has to be a lot of consumer confidence in terms of the information floating around on the Internet," he said. He fears that unauthorized hackers might break in to lenders' systems to obtain information from which to build extensive profiles of people for sale to others. "Mortgage loan requirements are fairly complex," Mr. Nechleba notes.

In theory, the Internet could eliminate the 15,000 to 23,000 brokers who currently originate 70% of loans. The 'Net would allow consumers to bypass them by going directly to lenders' posted mortgage programs and select the ones that suit them.

But that's a lot easier said than done, says Mr. Nechleba. "The consumer has to do all of the work," he says. For that to happen, Mr. Nechleba says borrowers will want a substantial discount in their interest rates, and not just a few cents per month.

Moreover, he maintains that consumers, when faced with making what is probably the largest purchase they will ever make, will want the advice that a broker or loan officer can give them.

Barbara Smiley, an industry researcher with Meridian Research in Needham, Mass., doubts that the Internet will account for a significant market share. "A mortgage loan doesn't lend itself to a quick turnaround," she says. "You don't get up in the morning and say, 'Oh my goodness, I need a loan today.'"

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