A wholesale lender near Detroit is hoping to widen its share of the mortgage market by selling an instant loan approval system to retail banks and credit unions.

Flagstar Bank of Bloomfield Hills, Mich., which changed its name on Jan. 1 from First Security Savings Bank, uses the Federal Home Loan Mortgage Corp.'s automated underwriting system and its own video conferencing system to issue loan approvals in less than an hour.

Flagstar calls its system the Security Network Approval Process, or Snap. In the last year, the bank has sold or leased the system to 400 mortgage companies in 32 states, and boasts that 98% of the 13,000 loan applications processed through the system have been approved.

Now Flagstar hopes to increase its mortgage portfolio by selling the system to community banks and other financial institutions that want to begin offering mortgage services.

Michael R. Hillman, the vice president of business development at Flagstar, said the bank is just beginning its pitch to lure new banks and credit unions into the mortgage banking business.

"They initiate the origination of the loan and they participate in the closing of the loan, but everything in between we take care of for them for a fee," Mr. Hillman said.

No one has signed up yet for the program, which Flagstar is calling the Lenders Interactive Video Exchange, or Live. But Mr. Hillman said his expectations are running high.

"We would hope that, by and large, half of the loans that we provided this outsource for would be sold to us," Mr. Hillman said. "Particularly among the credit unions, we might expect that they would choose to broker all the loans to us and not keep any for their portfolios."

Flagstar, one of the country's top 10 correspondent and wholesale lenders, has gained recognition for its loan approval system from the Smithsonian Institution, which has added Snap to its permanent research collection.

The system has two components. First, the bank uses Freddie Mac's automated underwriting system - known as Loan Prospector - to winnow out applicants whose loans can be approved instantly.

When applicants are not instantly approved - and Mr. Hillman said that 58% are not - the bank faxes their documentation to a loan officer and provides a video conferencing link.

Using Intel's ProShare video conferencing equipment, potential homebuyers and their real estate agents can then discuss financial circumstances and any credit history problems directly with a loan decision maker, enabling them to complete in half an hour a transaction that could otherwise take weeks.

"Retail banks are used to the idea of a loan applicant coming to their branch and sitting down with a loan officer who has lending authority, but the notion that a mortgage bank would be able to provide approval at the point of sale is pretty unusual," Mr. Hillman said.

Flagstar's system has earned praise from industry observers, who call it an ideal application of video conferencing.

"It's a medium whose time has come, and I think you're going to see it not only in mortgage banking but across financial services," said Fred Portner, president of Portner Consulting Associates of Alexandria, Va.

Mr. Portner said the system was both helpful for the consumer and cost- effective for the bank. "A roving originator out on the street may be lucky to do two loans a week," he said. "With video teleconferencing, you can put that originator in a call center and have him handle four or five loans a day."

Another company that has seized on the potential of video conferencing in the lending arena is Virtual Mortgage Network of Newport Beach, Calif. But Virtual Mortgage - which was formerly known as Virtual Realty Network - has taken a different approach, placing its video conference screens in the office of realtors.

"We install a PC free of charge into a real estate office, so we're going directly to the original point of sale," said Michael A. Barron, chairman and CEO of Virtual Mortgage Network.

Another difference, Mr. Barron said, was that Virtual Mortgage's system tapped into a network of more than 15 different mortgage lenders, while Flagstar's system relied on the bank as its sole lender.

Among the major lenders in the Virtual Mortgage network are Countrywide Credit Industries of Pasadena, Calif.; Mellon Bank Corp. of Pittsburgh; and PHH Mortgage Corp. of Mount Laurel, N.J. The company's corporate partners include Data General Corp. and Intel Corp.

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