Pipeline: Realty Groups' Networks Seen Vulnerable on Interest Rates,

Some say the loan officer of the future will be a person; some, a machine. But there is wide disagreement within each faction over what sort of person or machine the loan originator will be - and where he, she, or it will be based.

The industry is heavily populated with companies that say there is no substitute for good old human judgment, and that holding the customer's hand is the key to the business. But advocates of virtual loan offices are emerging as well.

Staking out the middle ground is Weston Edwards, who heads his own consulting firm in Laguna Beach, Calif. He spoke at a conference here on real estate finance sponsored by America's Community Bankers and the American Bankers Association.

"The explosion of point of sale capability is a powerful competitive force," Mr. Edwards said, in realty brokers' offices. "But the Achilles heels of POS are competitive rates and quality of service."

He pointed out that sales associates in real estate offices have a much larger stake in completing the home sale than in earning the small fee for a loan referral to the origination system. Thus, unless rates are competitive from the computerized loan origination network, or CLO, and service quality high, real estate people will direct loans to outside lenders rather than their in-house system.

Realty salespeople often prefer to use an outside lender, Mr. Edwards added, because they then have someone to blame if something goes wrong with the loan, reducing the risk of losing the home sale.

Mr. Edwards concluded that lenders could compete effectively with point of sale systems operated by realty groups only by themselves using technology to be competitive on rates and to provide top-notch service. Most realty agencies with their own CLOs have a very low capture rate, he pointed out, providing loans for only about 10% of their home sales.

Michael R. Hillman, vice president for business development at Flagstar Bank, Bloomfield Hills, Mich., took a somewhat different view. His institution is betting heavily on technology to support its effort to become a major force in wholesale lending.

But he stopped short of endorsing the cyberbroker. "Technology will never replace the loan officer," he said. "The loan officers will employ, but not be replaced by, better tools."

One tool he had in mind is a video conferencing system that lets lenders and their customers get on-the-spot loan approvals. When the automated underwriting system - Loan Prospector from the Federal Home Loan Mortgage Corp. - refers a loan for further checking, this can be done on the spot via video conference with an underwriter at a remote site. So even the harder-to-make loans can be approved in a single session.

Mr. Hillman said almost all applications are eventually approved through this process. Flagstar is leasing the equipment, which is portable, to its stable of lenders. The system has already vaulted Flagstar into the top three among wholesalers, Mr. Hillman said.

Another speaker, Leilani E. Allen, director of Tenex Consulting, Burlington, Mass., said automation of mortgage lending works best with plain-vanilla products. Use of the Internet, still rare, is likely to expand rapidly, she added.

But she said this leaves portfolio lenders with a big opportunity to find profitable niches in product configurations that do not lend themselves to standardization.

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