Jeff Lebowitz, a principal of Maryland-based SSP/RES Research, has his finger on the pulse of mortgage technology spending. As the author of the prestigious Mortech survey he is privy to data from much of the industry.

American Banker spoke with Mr. Lebowitz recently about the state of the industry.

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Is spending on mortgage technology rising?

LEBOWITZ: What we see is that technology spending over all appears to have leveled off or fallen.

Partly that can be attributed to the fact that lenders tend to make commitments to new systems, and implementation time for the systems is longer than expected.

Also, lenders have been preoccupied. Volumes have been high. They've also been preoccupied with Y2K issues.

Those are some of the factors in the softness of commitments to new technology.

Has mortgage technology caught up with technology in other financial services areas?

LEBOWITZ: I guess we are still relatively early in what we would describe as technology deepening-that is, finding applications of the technology that would really change the economics of the business. By that I mean things like data mining and data warehousing.

What about automated underwriting?

LEBOWITZ: Automated underwriting is the first step; it would be a platform to better understanding the market. That is the kind of deepening technology I'm referring to.

Is it cost-effective to spend on adding and upgrading technology?

LEBOWITZ: It has not altered the strategic market position. We are seeing smaller lenders adopting technology for the first time, but that doesn't result in an increased market share.

Is the technology making the process of issuing a loan more cost- effective for the bigger players?

LEBOWITZ: The answer is yes. Of course it has.

It's not the technology so much as the reengineering of the operations that is facilitated by the technology. It's the taking steps out of the process, reducing paper handoffs or data handoffs. It's the improving access to the paper piles of data that has proven to be cost-effective.

How tough is competition in originations software?

LEBOWITZ: It is a very difficult market to compete in. You have more competition (than in servicing software) because it's easier for new entrants-such as CFI Proservices and Cybertek-to come in.

Servicing systems are much more difficult, much more complex to develop. And because of that, you have a lower rate of proprietary servicing systems than origination systems.

Is there a big tech lesson that lenders still have to learn?

LEBOWITZ: Lenders have to be guarded about making technology investments that do not alter their positions in the market.

Intuit and Microsoft (for example) ... are using technology to put themselves into the mortgage process, where they are able to alter the structure or general distribution of mortgages. That's a good investment.

How serious is the struggle between traditional lenders and technology or computer companies that have taken a significant portion of the business?

LEBOWITZ: There is nothing big in technology that has driven competition. The problem is, there is just not enough profit to go around.

The numbers are still dominated by small lenders with under $20 million in origination and under $500 million in servicing. The ultimate answer is to reduce the number of competitors. That is starting to happen, through acquisitions.

Will small lenders be forced out?

LEBOWITZ: No, I don't think so, because the vendors can provide the appropriate scale of technology to keep the small lenders in the business.

Also, Fannie's and Freddie's technology levels the playing field to a great degree.

What do you foresee happening in mortgage technology in the future?

LEBOWITZ: I see the spread of the multilender networks, like the Microsoft and Intuit sites. It's going to cause an unbundling in the origination of a mortgage, so that you have a different allocation of the revenues attributed to originating the loan, to posting rates, to qualifying borrowers, and to the servicing.

Can you survive without the technology?

LEBOWITZ: No, you have to have it. But there is a danger of overspending. The real issue is investing no more than is necessary to make the quality of service you provide the same as the competition's. u

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