Danger, your dreams are about to come true . . .

That's what customers will see when accessing Eastern Mortgage Services' site on the World Wide Web.

The Trevose, Pa.-based company, which has more than 20 retail offices in the Middle Atlantic and New England region, ranks among the top 50 in originations. It services a portfolio valued at more than $2.5 billion.

Observers say Eastern has distinguished itself through its ability to beckon new business through direct-lending channels on the Internet.

The company's standalone de novo unit - EMS Financial, which specializes in subprime lending - has taken thousands of applications over the Internet and has closed more than $12 million in loans in 1996.

The subprime unit, which began operations in 1995, has generated about $200 million in loans, or about 15% of Eastern's total lending volume. The company projects this year's subprime business will reach $400 million.

"We are learning how to use this medium now," said Gene Devine, EMS Financial's senior vice president and developer of its direct-lending program. "This medium will become a legitimate distribution channel for consumers, and we want to establish our presence now - not in three years, not in five years when it is too late and we are behind the eight ball," he said.

Mr. Devine, 36, joined the de novo unit in 1995 from Devon (Pa.) Direct Marketing and Advertising to help EMS Financial launch a direct- lending channel.

He said the competitive advantage comes through its "linking strategy," which is simply to develop as many affinity relationships with electronic commerce leaders as possible.

EMS Financial, which also processes Internet-based loan applications for its parent, has allied itself with such entities as Myers Internet Services Inc., a Web site tailored primarily to the mortgage industry, and Fran Tarkenton's Small Business Network, an up-and coming Internet-based consortium of small businesses.

James Hayden, president of EMS Financial, said prospective customers will submit terms such as "credit" or "home finance," through Internet search engines like Yahoo! or Webcrawler. The results will always yield the mortgage bank's Web site - very often at the top of the list of hits.

"No one is going to go on the Internet and key in 'Eastern Mortgage Services,' " Mr. Hayden said.

"Our job is to make sure we are linked strategically with everyone possible," he said. "It's all linking strategies, and it will be difficult for people to come in and try to get in front of us now."

The mortgage industry is enamored with the economics of alternative lending programs such as direct lending, which displaces much of the human contact between lenders and potential customers, said Leilani Allen, analyst at Tenex Consulting, Chicago.

But, she said, few companies have "seriously exploited the alternative channels."

"On the surface, it is very attractive, but it's a very different animal when you don't have an intermediary," Ms. Allen said.

A recent study conducted by Tower Group in Wellesley, Mass., found that only five of the top 25 U.S. banks were able to take loan applications on the Internet.

Of those that could, only Wells Fargo was able to offer a prompt response to consumer applications, said Michael McEvoy, analyst at the technology consulting firm.

"Most bank Web sites are just marketing material" and full of "a lot of garbage," he said.

In EMS Financial's model, applications received over the Internet are downloaded into the company's origination data base from Fitech Systems Inc., Greensboro, N.C..

Applications for first mortgages, home equity, and refinancing loans are followed up with phone calls from mortgage bankers within 24 hours.

Conditional approvals could then be granted based on the information submitted and typical credit-scoring processes. The company also is working on an Internet-based verification of employment capability.

Eastern Mortgage Services also has raised its strategy a notch by closely aligning itself with Fran Tarkenton, formerly a quarterback with the Minnesota Vikings and New York Giants.

Mr. Tarkenton is working with the mortgage bank to develop a small- business lending program for members of his Internet network. In return, he has signed a deal to become Eastern Mortgage Service's celebrity spokesman.

Although novel, what Eastern Mortgage has developed does not use bleeding-edge technology. Still, people like Gene Devine and James Hayden have attempted to differentiate themselves in the industry.

Innovation lags in the market, partly because of parent company demands for steady profits when mortgage banking "does not generate that kind of steadiness," said Charles E. Welsh, a vice president at Fitech.

"The quest for profitability results in short-term thinking," exactly when mortgage bankers are "at a stage when they have to start thinking long-term" if they are to survive, he said.

Eastern Mortgage is betting on the Internet to become a direct- lending channel to connect with a much broader customer base. The company is licensed in 32 states.

Eastern Mortgage is a unit of Dauphin Deposit, a $6 billion-asset bank based in Harrisburg, Pa. Dauphin is set to merge with First Maryland Bancorp.

Eastern Mortgage officials said the company probably will not wait for Fitech's new product, opting instead for Fiserv's system, called Unifi.

Despite Fitech's three-year effort, and a ringing endorsement from Flagstar, Mr. Devine said Fiserv's system will improve its subprime lending operations.

"There is other stuff out there that is just on the edge, that will allow my mortgage consultants to be able to do things more immediately," he said.

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