Executives at the Mortgage Bankers Association of America technology conference in Chicago this week were told to get on-line or risk obsolescence.

"The mission of the industry should be to harness the Internet," said Donald E. Lange, the president of the association.

Mr. Lange, who is also president and chief executive officer of Pacific Financial Services Inc. of Torrance, Calif., said one-fifth of the American population, or 50 million people, use the Internet, up from 22 million people two years ago.

"By 2003, we are predicting that 20% to 25% of the market share will be from Internet mortgages-that is huge," Mr. Lange said. "Internet mortgages are among the hottest items that society is dealing with today."

Last year was the first time most new on-line users identified their home as the principal port of access, rather than their business, said Marc C. Smith, president and chief executive officer of Crestar Mortgage Corp. in Richmond, Va., and former president of the association.

He said the entire gain in Christmas holiday sales last year came from Internet sales, as in-store retail sales were flat from year to year.

"That figure speaks to the obsolescence of retail shopping, and there is no reason why that notion isn't applicable to mortgage shopping," Mr. Smith said. "Americans are constitutionally comfortable with change; the information age is now changing everything about the way we conduct commerce."

Mr. Smith said the new technology is a major factor in the longest economic expansion in the postwar era.

"Technology delivered just-in-time inventory management and real-time inventory knowledge to retailers, wholesalers, and vendors," he said. "Inventory buildup used to be the leading cause of recession, because we usually would not find out consumer demand level had changed until three months after the fact."

Mr. Smith said technology has empowered customers, and lenders must respond to remain viable and competitive.

The change "has made the individual much less servile in requesting tools and services from an institution. Now, giving customers access to their information on your system is critical to the relationship," Mr. Smith said. "Over one-half of on-line users access the Web exclusively from home-on their own time-and they have no patience."

Mr. Smith said this places a high premium on speedy and accurate responses to customers.

"In 1992 a 1.7% interest rate change prompted a refinance boom," Mr. Smith said. "In 1998 a 0.7% rate change prompted a boom. Technology did this because customers did not need to be hit by a two-by-four to know a good refinance rate anymore."

He said technology companies such as Microsoft, Intuit, and E-Loan will act as partners of convenience so lenders "can keep pace with technological changes through them.

"You can't deliver a sales pitch to the mortgage customer of today; they know the difference," Mr. Smith said. "You have to deliver knowledge, and you must make it entertaining and flexible."

Chuck Williams, president and chief executive officer of Brightware Inc., a Novato, Calif.-based on-line service provider, said there is still a considerable customer service problem. He said that what is supposed to be the least expensive on-line solution could turn out to be the opposite if it is executed and used incorrectly.

"People on the Net have questions and they still want to interact with you," Mr. Williams said. For a site to be successful, "you have to give people an interactive experience on the Net-using software technology-that rivals phone service."

Mr. Williams said many lenders make a mistake by adding site content in the hope that consumers will find their own answers on-line.

"The average corporate Web site has 15,000 pages of content. The more content you have, the more questions you'll get," Mr. Williams said. "And people are not finding the answers themselves in the added content."

Mr. Williams said 63% of Californians recently seeking to refinance their mortgage started on the Internet-but only 14% were successful.

"That is a staggering number, but almost half of the people that started on-line got confused and had to pick up the phone. That's what you have to eliminate," Mr. Williams said. "By front automation, virtual mortgage representatives, and automatic question-answers on your site, the volume to human representatives comes down 80% to 90%, and you're left speaking to only the most qualified borrowers."

Mortgage Bankers Association executive vice president Paul S. Reid said the group's on-line initiatives included adding on-line conference registration, a virtual exhibit hall, and information for members on policy issues, as well as selling publications and products on the site.

Mr. Reid conceded that for some, there might never be a substitute for face-to-face financing.

"We must always be mindful that we are dealing with human hopes and dreams, the biggest purchase most people will ever make," Mr. Reid said. "Technology and the Internet may cut through the paper trail and expedite the process, but we as lenders have to remember that home purchases can be scary, and we must make sure the mortgage process remains consumer- friendly."

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