have traditionally paid most of their attention to building volume. But the mortgage business, which has been for years among the most labor intensive and paper-oriented of financial industries, now finds itself in the throes of sweeping technological change. Highly complex and noted for its myriad of distinct business lines, the mortgage industry must step up its efforts to integrate a range of technologies that originate, close, and ultimately sell loans to the secondary market. Its hope is to free itself from the paper deluge and excess product and back-office costs. Or at least that's the message many mortgage bankers took home from last month's Mortgage Banking Association of America conference held in San Diego. Few doubt that technology will reshape the way their business is conducted. They agreed that fundamental change was necessary to remain competitive. "Mortgage companies are 15 years behind" other financial markets, such as the commercial banking and securities industries, claimed Barbara Smiley, an analyst at the Tower Group, a Wellesley, Mass.-based bank technology consulting firm. Technology historically has taken longer to take root in the industry because "it's difficult to do something systemic when you have so many people with different interests and different priorities," said Ms. Smiley, herself a former mortgage banker with Prudential Home Mortgage in Frederick, Md.

*** But an example of how the industry can come together for mutual benefit is the MBA-led initiative called the Mortgage Electronic Registration System, or Mers. The system will be an electronic registry whose data base will track mortgages for the life of the loans. Inter-company communications will occur via electronic data interchange - the electronic transfer of business data in standard formats. Officials said Mers will eliminate the vast volumes of paper every time servicing rights are transferred. The system will be owned by a consortium of industry groups and mortgage companies, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corp., the Federal Housing Administration, and Government National Mortgage Association, among others. Officials say the industrywide utility will be up and running in little more than a year. Several mortgage bankers have become involved, and Mers has secured over $3 million of funding for its development.

*** But while Mers is still only an idea, other more concrete examples of technology were on hand during conference sessions and on the crowded exhibit floor. Michael Hillman, an assistant vice president with First Security Savings Bank, Bloomfield Hills Mich., detailed First Security's Snap, or Security Network Approval Process, a government sponsored enterprise-supported point of sale origination system that employs full-motion video technology. "First Security has been able to merge automated underwriting with video conferencing to create a truly practical and customer-friendly technology," Mr. Hillman said. The program, up and running since March, will ultimately provide direct video access to its 25 underwriters and 350 loan correspondents, Mr. Hillman said. First Security already has 400 units installed in various locations nationally, and processes just under $150 million in loans a month. "We can provide a firm commitment with regards to credit" within minutes, he said.

*** One of the more successful uses of technology in the mortgage business is automated origination software. It has led to an onslaught of companywide streamlining and cost-cutting efforts. "Yes, automation is actually helping the lenders meet some of their goals of trying to reduce costs and expenses in their operations," said Joseph A. Cuffaro Jr., chief executive and co-founder of CLM Technologies, San Diego. Mr. Cuffaro's firm develops automated appraisal software that uses artificial intelligence technology. Such systems portend fundamental and drastic changes in the way mortgage companies will do business in the future, Mr. Cuffaro said. He said the changes would come at someone's expense. Junior underwriters in the field, appraisal firms who operate in an overcrowded market, and other specialized service providers such as mortgage credit reporters will be adversely affected, he said.

*** In what amounts to a good news/bad news scenario, Fannie Mae and Freddie Mac have been given the nod by Congress to promote homeownership, especially among lower-income borrowers. The good news is that the two government sponsored enterprises promptly adopted the congressional edict as their own mission, and have embraced technology as a way to cut the associated costs of borrowing money. The bad news is that many large lenders increasingly perceive the agencies as competitors, Ms. Smiley said. The agencies' Loan Prospector and Desktop Underwriter products are "automated tools that replace" the traditional roles of underwriting and credit analysis companies, Ms. Smiley said. Mortgage bankers are uneasy because Fannie Mae and Freddie Mac, which dominate the secondary mortgage market, dictate the products they will buy based on how these credit analyses and loan appraisals are done. They essentially dictate "how originators do their business," Ms. Smiley said.

*** Also at the conference, James W. Noack, president of Monument Mortgage Co., Walnut Creek, Calif., detailed how his company targets prime homebuyers by offering loan applications through the institution's home page on the Internet. Although Mr. Noack agreed the Internet will not be a main vehicle for originating loans, the medium nevertheless represents a popular alternative for many. The Internet does not require the personal interaction associated with "a heavy-handed sales industry," he said. "One of the big motivating factors that will cause the use of network application process is the apparent fear and distrust of salespeople," Mr. Noack said.

*** Robert E. Lee 3d, a senior vice president of Alltel Mortgage Division, announced that his company has become a content provider for the Microsoft Network. The mortgage unit, formerly called CPI Interchange, is a subsidiary of Alltel Information Services Inc., a national network for electronic data interchange communications. The Jacksonville, Fla.-based network will provide Property Finance Forum, an on-line service targeted at consumers, mortgage lenders, and service providers. The service uses "shopping mall" graphics to provide consumers with home lending and refinancing information, and offers "interactive chat" capabilities among lenders and prospective consumers. The service, which joins about 200 other content providers on the Microsoft Network, will be expanded to include electronic data interchange transactions.

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