retail lenders are not yet realizing any cost or time reductions on-line.

Most sites, whether sponsored by independent Internet companies or banks, simply collect leads, pass out customer information, and pull in applications on-line. Very little has been done to automate back-end processes.

"We stuck an electronic front end, in lieu of a broker, on top of a pig of a process, and then said, 'There we go, Web-based mortgages,' " said James Punishill, an analyst at Forrester Research in Cambridge, Mass. He said that "the back end is still terrible" for most of these sites.

Mr. Punishill said that until loan funding, title search, and appraisals are automated, costs will not be cut.

"This is why you see Intuit buying Rock Financial and why you see E-Loan trying to originate so many of its own loans," Mr. Punishill said. "We haven't saved any money because all the Internet does right now is take an application and drop it into the old process."

But Mr. Punishill said investors need not get too hung up on these shortcomings. On-line brokers realized economies of scale only after they had enough time to automate the entire process, he said.

He added that it is possible that most companies could automate about 80% of the mortgage process in the next 12 to 18 months, but this would require the cooperation of local governments, appraisers, and title companies.

Cameron King, formerly an executive vice president with Countrywide Home Loans, agreed. But Mr. King, senior vice president of technology integration at E-Loan Inc. of Dublin, Calif., since September, added that lenders would probably cling to the idea of a manual back end, because the biggest portion of their balance sheet comes from bricks-and-mortar.

Mr. Punishill said most mortgage companies were simply waiting for the refinancing boom to slacken so they could devote more time to back-end processes.

"It's not an easy task, and you don't want to do it at peak volume."

Another concern is the millions of dollars that Internet companies are spending on advertising. David Matthews, president and chief operating officer of Ultraprise Corp. of Shepherdstown, W.Va., said this is a necessary evil.

"If you ask consumers how you buy books on the Internet, they would tell you Amazon.com. If you asked them what their favorite Internet mortgage site was, you'd get a blank look," Mr. Matthews said. "In a refi market, it's a little bit easier, because consumers are actually out looking for deals. In a higher interest rate market, people are not necessarily shopping on the Internet for mortgages."

Mr. King said Internet lenders have not reduced costs, because most of their capital was put into building their brands.

"If you look at the large, traditional lenders, they've established their niche in the market over years. The on-line lenders have to work doubly hard to get that message out," Mr. King said. "The on-line lenders have a better mousetrap. The traditional lenders don't want consumers to know that."

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