The mortgage business is, on the surface, a people business. Yet mortgages are also a commodity business, and the industry is increasingly driven by technology as lenders struggle with newly paper-thin profit margins.
To the public, home loans will continue to be a high-touch business. In fact, it may well seem more personal than ever as automation allows loan officers to spend more time in the field with their laptop computers, doing what they do best - originating loans - rather than being bound to the office by endless paperwork. And borrowers can look forward to faster answers and faster closings.
But those loan officers - many of them brokers - will only be the personal front end of what is becoming an otherwise almost completely electronic process.
Most data on loan applications will flow from the laptops or desktop computers to an automated underwriting and insuring process, then to the secondary-market agencies, and ultimately to investors who buy mortgage securities. And there will often be little human intervention along the way for the easiest-to-make loans.
The rush to "wire" the mortgage industry is driving many major players in opposite directions - some to shed their mortgage businesses in favor of greener pastures, others to expand ambitiously to achieve business volumes that will justify massive technological expenditures.
A wired mortgage industry is far from a futuristic adventure. All the elements are already in place or available. And integration into a seamless system is all that remains to be accomplished - though that may well prove to be a big order.
The advance of originations and underwriting technology even has some segments of the industry worried. One of these is mortgage brokers, whose specialty is retailing mortgages to the public and who fear they could be replaced by a computer.
An article in a recent issue of National Mortgage Broker magazine put it this way: "Undoubtedly, the mortgage industry equivalent of a New Millenium Dr. Frankenstein is preparing to release a CyberBroker on consumers. CyberBroker could even capture the market invisibly by providing low rates and great service over phone lines."
But brokers aren't the only ones worried about being dislocated by technological change. Lenders of all sizes have expressed fears that the government-sponsored housing finance agencies - Fannie Mae and Freddie Mac - will be in a position to cut out all middlemen and make loans directly to the public.
Both agencies have steadfastly denied that they have any designs on direct lending and have gone out of their way to deliver this message to their lenders.
Frank Raines, Fannie's vice chairman, said in a recent interview: "It's a neurotic industry. People have the deep-seated view that they don't add value. And the availability of a terminal to handle everything means, 'We don't have any meaning in life.'"
Other industry participants who fear their days may be numbered are smaller providers of mortgage credit reports, who are being squeezed by the trend toward using less costly alternatives, such as briefer credit reports, retrieved electronically and consolidated from at least two providers.
Mr. Raines sees technology as having already transformed the secondary market, making it easier for investors to manage unruly cash flows and to get tight control of credit risk.
"The loss side has been a backwater for lenders," he said. Now, he says, technology is assisting Fannie Mae - the Federal National Mortgage Association - in conducting extensive loss-mitigation efforts, including early identification of credit problems. "We can now give thousands of servicers in 48 hours the kind of information that used to take weeks to produce."
On the servicing side, Mr. Raines says economies of scale have been captured through consolidation and technology, but he suggests the advantages of scale may now be leveling off.
Vendors, meanwhile, are moving rapidly to enhance the value of servicing by making it more useful for cross-selling purposes - something that has driven servicing transactions over the last year or two.
Data-Link Systems, for example, says its system stores amost 4,000 data elements about the customer. "All of this data can be extremely valuable in target and time-dependent marketing, especially for bank holding companies that already have analytic and artificial-intelligence technology in house," said Sadu Thinakal, a Data-Link vice president.
Data-Link is also among the vendors pushing small and large cost-saving enhancements to their servicing systems. The company plans, for example, to introduce laser printing of checks to eliminate the need for preprinted forms. It will also offer special features to simplify servicing of adjustable-rate loans. And it will provide investor reports that meet the interchange standards of Fannie Mae and Freddie Mac - the Federal Home Loan Mortgage Corp.
Says Mr. Thinakal:, "As volume increases, so does the need for achieving scale economies and automating or preventing all possible exceptions." He says his company is moving toward a paperless servicing system.
Meanwhile, the originations process remains a promising area for further profit enhancement. Alltel Information Services, for example, offers an originations system especially adapted to laptop computers. "It allows loan officers to input prequalification data during interviews with potential borrowers," the company says. In addition to allowing the printing of a wide variety of forms, the system issues a report on missing items. The company says it also permits faster decisions on applications.
Mr. Raines of Fannie Mae says mortgage originations are in a period of deconsolidation, with more people making loans than ever before.
"The process is people-intensive, and technology cuts the cost of originating loans by at least $1,000," he says. But he does not see technology as reducing the human element in mortgages. "People will have to talk to somebody," he says. "There will always be a role for people to explain the product. There are more products and more choices than ever."
"There will be fewer human beings involved, but technology certainly won't eliminate them," Mr. Raines said. "The brokerage industry has been through the same process - and Merrill Lynch has never been bigger."