Contour Software Inc., a Silicon Valley mortgage technology company, started a service last month to handle all aspects of loan origination, processing, and closing for mortgage companies.

The service, named Virtual Mortgage Company, aims to reduce the costs and paperwork of originating loans.

"We'll do all the processing, accept applications, order title and credit appraisals," said Scott Cooley, president and chief executive officer of Contour, "and we will even go to a customer's house to get signatures for closing. This is an excellent way for smaller banks to start doing mortgages without the expertise or excessive personnel."

Contour has designed Web sites for about 300 banks' mortgage units that can quote rates, prequalify potential borrowers, and originate loans on- line up to the point of closing.

The company can handle all contact with a borrower, requesting necessary documentation and placing it in a virtual loan folder.

Mr. Cooley said most banks pay an initial $7,000 fee, with an additional charge of $300 to $700 per loan, depending on the services outsourced. Banks using only the Web design service pay no fee per loan.

Contour was bought last April by First American Financial Corp., Santa Ana, Calif.

Contour is planning to underwrite loans through a Web browser with Republic Mortgage Insurance Co., which does contracted underwriting. Imaging the entire loan package on-line would also bypass paper and mailings to all parties involved in the loan.

Discount Mortgage Center, a Campbell, Calif., Internet mortgage bank, signed on as Contour's first purely on-line lender a month ago.

Stephen Feldman, president of Discount Mortgage, said the on-line company was spun off from a traditional mortgage bank. Mr. Feldman would not disclose the name of that company.

"We were looking to do a heck of a lot more loans than we could ever do on a face-to-face basis at a significantly better price for us and the client when we started this company," Mr. Feldman said. "We are certainly a ways from breaking even, but that is just a matter of time."

Mr. Feldman said the on-line bank required only four employees, no loan officers and thus no commissions. Discount Mortgage said that it has had five to 10 loan applications a day in the past month and 14,000 hits to its Web site.

Mr. Feldman said he plans to keep his on-line offerings simple, leaving the more exotic products to the traditional bank.

"You can't do everything on-line and be profitable. You need to restrict yourself to fixed 30- and 15-year conforming and jumbo loans and maybe one- year ARMs," Mr. Feldman said. "If somebody wants something other than that, they should be going to a full-service broker."

Mr. Cooley said that though on-line lending may be the wave of the future less-savvy borrowers may need to stay away from it.

"My prediction is that by 2003, we will see 50% or more of refinances and 20% of purchase transactions done on the Internet," he said. "But unless they are sophisticated and can do their own work on the Internet, a lot of buyers really need a lot of hand-holding."

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