After falling short in his first quest to automate the whole-loan secondary market, John Bourne has a new plan: eliminate the market altogether.

The president and chief executive officer of the newly formed Ultraprise Loan Technologies Inc. is marketing software that will allow Wall Street executives to buy loans directly from originators. Traditionally, institutional investors have bought pools of loans from third-party aggregators, which buy them from originators.

"Why does there have to be a secondary market?" Mr. Bourne asked during an interview with American Banker. "If you automate the supply chain, why does there have to be a distinction between the primary and secondary market at all?"

Ultraprise Loan Technologies was born last month, when Ultraprise Corp. of Frederick, Md., merged with LoanTrader Inc., an Irvine, Calif., loan origination technology provider.

Ultraprise Corp. had operated an online loan exchange, where lenders could post loan pools for sale to other financial institutions. (The new company shut it down this month.)

In mid-March, Ultraprise Corp. received a patent for its Web-based loan-trading technology that connects originators directly with buyers. The technology will form the foundation of the new company, Mr. Bourne said.

Ultraprise Loan Technologies is marketing six software systems that Ultraprise Corp. and LoanTrader sold before the merger, including those that connect institutional investors with originators and those that help individuals apply for loans over the Internet.

Mr. Bourne says he hopes that customers will use his software to cut the middleman out of the loan purchasing process, reduce their costs, and improve their slimming margins. "If the big guy can buy the little loans and aggregate them himself, what does he need this middle guy for?"

He hopes his company will become the leading technology provider for mortgage loan processing and servicing, from origination to securitization.

So far five customers are either running Ultraprise Loan Technologies systems running or have agreed to use them. One of them is Freddie Mac, which signed a $1.3 million contract this year to use Ultraprise Corp. software. Mr. Bourne said he hopes to sign up eight more customers by yearend and another 15 next year.

The key to its success will be to show Wall Street the cost benefits of moving closer to individual lenders in the mortgage food chain, Mr. Bourne said. "You could afford to have some of those inefficient processes there before, because there were enough margins there. But margins are getting thinner. The market has got to change."

Craig Focardi, a senior mortgage analyst with TowerGroup, a Needham, Mass., consulting firm, said the new venture has a "shot" at survival, but it still faces challenges in the origination technology market, which is filled with competitors. "The challenge is that many lenders are already developing or are already contracted to purchase solutions."

However, Mr. Focardi said the market for technology that connects buyers with lenders is "virgin" territory ready to be tapped by vendors.

"There is a definite potential in that market," he said. "From a technology perspective, there is a clear need for this technology. Direct loan-level linkages generally don't exist." He noted that Lehman Brothers agreed last month to use LT2k, an automated underwriting system developed by ARC Systems, to buy loans directly from lenders.

The main problem with Ultraprise Corp.'s loan exchange was that too many elements of the transactions were conducted outside of the exchange, Mr. Focardi said. This reduced the number of opportunities for the company to make a profit on any given loan, he said.

Stuart A. McFarland, president and CEO of Pedestal Inc., a Washington company that runs an online exchange that helps lenders sells loans to investors, said that there may be a market for Mr. Bourne's idea.

As the whole-loan market grows, there will be growing interest for better infrastructure to connect lenders with buyers, Mr. McFarland said. "I think there is a tremendous opportunity in the whole-loan market. In fact, large wholesalers get most of their production from correspondent and broker relationships."

However, industry consolidation is doing away with many of that market's players, Mr. McFarland said. Most of the industry's major lenders now pool their own loans together for direct sale to Wall Street investors, he said.

Despite the consolidation, in order to survive in that market, a software company still has to provide systems to all of its niche businesses, Mr. McFarland said. It also has to be ready to offer these clients expertise in their needs and exhaustive backup services, he said.

"There may be a market for loan sellers to utilize technology to help infrastructure and the processing and pooling of securities," he said. "But on the other hand, without services to go with that technology and knowledge of that niche marketplace, it is only half a solution."

When the Ultraprise-LoanTrader merger was announced, the two companies also announced that they had closed a $9.5 million round of equity funding for the new company. The funding was led by Capital Z Financial Services Fund II LP. The other investors were Koch Ventures Inc., FBR Technology Venture Partners, and FBR Financial Service Partners.

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