Technology companies have found that establishing a presence on Fannie Mae's and Freddie Mac's electronic malls for vendors is an effective route to sales growth.

Fannie and Freddie have functioned as virtual real estate developers by setting up the malls, said Griffith Straw, director of marketing, products, and new business for Freddie Mac. Service providers run the electronic stores and the lending community can "buy any service that they need electronically over the network through one connection," he said.

FiTech Systems is a case in point. The Greensboro, N.C.-based technology company does 50% of its business through Fannie and Freddie, said Charles Welsh, senior vice president for marketing and sales.

FiTech provides mortgage processing software to be used with the GSEs' automated underwriting systems. It specializes in the back-office operations that include closing, underwriting, and document preparation, said Mr. Welsh.

FiTech's growth over the last five years has been based on sharing data on the borrower and the loan with Fannie and Freddie, he said. This process helps the secondary-market companies evaluate whether they will buy a particular loan.

"Interfaces have not been an easy thing historically," Mr. Welsh explained. FiTech struck agreements with the agencies to share disclosure on a timely basis to "keep the products in synch" and to keep both sides informed about what might be coming down the pipeline, he said.

The combination of Fannie's and Freddie's automated underwriting engines and FiTech's software "takes time and dollars out of the transaction" for lenders, Mr. Welsh said.

Dynatek Inc. of Livonia, Mich., is also working with Fannie and Freddie on automated underwriting.

Vendor relationships with Fannie and Freddie are evolving, but to date "the vendor has had to bear the full brunt of this integration," said Jack Luhtanen, president of Dynatek. "The lenders basically feel that it needs to be a standard in the software."

Fannie and Freddie do not pay Mr. Luhtanen to create a compatible system, but they do monitor it and certify that the interface works correctly, he said.

Expenses to maintain interfaces and to accommodate an average of two major changes each year can add up, noted Mr. Luhtanen.

While Fannie and Freddie "do a good job of providing the technical resources," Mr. Luhtanen said the companies "should be sharing in the cost of implementing these technologies."

Fannie Mae said it too incurs costs to make the process successful. Fannie Mae has invested in "setting standards" and providing "network infrastructure" that give vendors value-added services that can be offered to their customers, said Michael J. Williams, senior vice president for customer technology services.

Credit and underwriting services are used most heavily on Fannie's electronic network called MornetPlus, said Mr. Williams. Fannie's strategy, he said, is to "give lenders the ability to handle all their business transactions electronically."

Toward this end, even companies that underwrite and buy nonconforming loans-those not eligible for purchase by Fannie or Freddie-have a presence on the system, he noted.

Calyx Software of San Jose, Calif., is working with Fannie to produce a technology pack for smaller lenders. Calyx bundles Fannie's automated underwriting system, computer hardware, and origination software, said Ben Wu, director of product development for Calyx. The company is also working with Freddie Mac in reaching lenders and correspondent brokers.

In the partnership with Fannie, Calyx offers originators-mostly mortgage brokers and retail lenders-a turnkey solution so lenders can simply plug in a system and go to work, Mr. Wu said. Calyx buys the hardware with the customers based on their needs, then installs its software along with Fannie Mae's interface to enable the lenders to originate and process loans, he explained.

Technology companies such as First American are also providing Year-2000 consulting, credit reports, and appraisals on Fannie's and Freddie's electronic networks.

"Fannie and Freddie obviously have to salute any initiative that is going to be successful in the first-mortgage business, said Joe Reppert, vice chairman of the St. Petersburg, Fla.-based First American. "They initiate sometimes and they support sometimes. I think that relationship is in pretty good balance."

Freddie Mac does not want to be "in the middle of our customers' business," said Mr. Straw. Use of Freddie's Goldworks network-established through a partnership with IBM-quadrupled in 1998, he said. And electronic appraisals have become one of the biggest growth areas. Last year, nearly 600,000 transactions were appraised electronically, and the number is expected to grow to more than one million in 1999, he said.

Mr. Straw agreed that vendors "had to bear the majority of the costs" to build software and interfaces for the lending community. But he noted that "everything is negotiable," especially in the fast-changing technology landscape.

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