Mortgage lenders across the United States are turning to automated underwriting technology to reduce loan approval time from three or four weeks to just three or four minutes.

But lenders face a daunting choice of systems. Fannie Mae and Freddie Mac offer systems that let lenders with laptop computers underwrite loans to their respective standards, as does PMI Group, the mortgage insurer. And some lenders may want to develop their own technology.

"Having more than one makes it more difficult," said Kevin W. Bartlett, managing director for secondary marketing at Countrywide Home Loans in Calabassis, Calif.

Countrywide uses its own automated underwriting system called Clues-for Countrywide Loan Underwriting Expert System-for front-end operations. But it also uses the Fannie and Freddie systems for delivery activities.

"I don't think we can afford to run loans through both systems and pay fees to both agencies," Mr. Bartlett said. Ultimately, he said, Countrywide plans to use Clues primarily, and supplement it with Fannie and Freddie's systems when there is a direct advantage.

Fannie Mae's Desktop Underwriter and Freddie Mac's LoanProcessor are key weapons in Countrywide's battle for market share. Both systems are software programs that enable lenders to get approval at the point of sale. PMI's system, pmiAura, was launched in 1987 and made available to lenders in 1992. Six of the top 12 lenders are licensed to use it, a spokesman said.

Fannie and Freddie have no plans to cooperate on a shared automated underwriting system, because as investors each agency wants to make the decision on which loans to purchase. But under the auspices of the Mortgage Bankers Association, they and other industry players, including the Mortgage Insurance Companies of America, began work in October 1996 to develop a common data set-information needed to feed an automated underwriting system, said James W. Horne, director of technology initiatives for the MBA.

This information includes borrowers' addresses, loan amounts, debts, assets, and other information for loan applications and underwriting decisions.

The information would let lenders work with various systems, including both Fannie's and Freddie's, and make it easier and more cost-effective to use automated underwriting, Mr. Horne said.

HomeBanc, an Atlanta based lender, has been using automated underwriting for the last two years at the point of sale, and has observed improvements in customer service and streamlining the loan process. HomeBanc uses the Freddie Mac system.

Patrick S. Flood, president of HomeBanc, said automated underwriting has enabled it to cut down on paperwork that some customers had found a daunting part of the mortgage process. To sit with a customer face-to-face and approve a loan within a few minutes constitutes "a historical change for the industry," Mr. Flood said.

Mr. Flood said the plusses of Freddie's system outweigh the minuses, but noted that "it's not until you can reorganize and reengineer your workflows that you can drop cost to the extent that it adds a benefit."

Companies that still use traditional processing "put consumers in a position where they have to wait inordinate time frames to close a mortgage," he said. With his eye on the potential for another huge refinancing wave, Mr. Flood said that the Freddie Mac system will let customers capture a new interest rate more quickly.

Wachovia Mortgage Co. in Winston-Salem, North Carolina, which closed $1.5 billion in loans in 1997, began using Fannie Mae's system in April, and implemented it in under 90 days, said Thomas W. Trotter, president.

The short learning curve for Wachovia's first automated underwriting system was a result of combining Fannie Mae's system with Wachovia's previous point of sale software program, which is called Wamos, Wachovia Mortgage Origination System, he said.

Wachovia shows the point of sale system to customers on laptops, and there is a built-in link to Fannie Mae's system. Wachovia is also using Fannie Mae's software with underwriters, Mr. Trotter said. He said Wachovia is approving about 70% of all loans run through Fannie Mae's system.

Although Wachovia chose Fannie's system first, the ground work is now in place to layer in other underwriting models, including Freddie or PMI, Mr. Trotter said.

Freddie Mac estimates that by yearend 500,000 loans will have been processed by its system. About $58 billion of loans have been processed this year through Dec. 18, more than twice the total for the same period of 1996. In 1997, Fannie has been processing 6,000 loans a day, and it expects that customers will underwrite more than a million loans through its system in 1998, or about 15,000 loans a day.

"The greatest problem is implementing the system at the most effective point in the process for that particular lender," said Mr. Horne of the MBA. Lenders will get the maximum benefit from "correctly evaluating where automated underwriting best fits into their ideal workflow," he said.

But even with technological advancements and streamlining business practices with computers, some lenders still reserve a place for old- fashioned, face-to-face interaction.

At HomeSide Lending in Jacksonville, Fla., where PMI's and Fannie Mae's systems are in use, the systems are never used to decline a loan, said Glenda S. Edgy, senior vice president and director of underwriting and fair-lending. Automated underwriting is an effective tool that has increased the quality of the loans HomeSide has purchased, Ms. Edgy said, but "there always has got to be a human element."

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