to survive, according to speakers at a Consumer Bankers Association conference last week. The opening message to lenders was that they have a premier product that was launched well in the 1980s, but now it's time to step back, reassess, and come up with some new game plans. "Don't rest on your laurels," said one speaker. William E. Storts, partner with Andersen Consulting in New York, offered an even harsher prediction. "Over 50% of you here won't be in financial services in four years," he said, because the industry is changing so fast. "And the winners in your business probably will not come from your industry. "The people you have to worry about are the people you don't know yet."

Right now, the home equity industry is straddling the fence between a small-town, relationship-based attitude towards originations and service, and a high-volume, low-price future that will concentrate on strategically pinpointing specific niches. Some conference attendees talked about great home equity performance from hands-on servicing - annual drive-by reappraisals, contact with the borrower every 120 days, and bank managers with their pictures in the yellow pages, first-name relationships with customers, and a loan on every block. But this approach was scoffed at by the high-tech side. "Do you know what these people's expenses are?" quipped one small to midsize commercial banker with a new niche-oriented lending program that put $5 million in their home equity pipeline in a few weeks. "Ridiculous. We're stealing business from them." Mr. Storts agreed. "You're wasting all that money spent on building relationships," he said. According to Andersen's recent financial-services study, consumers pick financial products according to one main issue - price. Their second consideration - they want their loan fast. The Internet is going to play a big role in boosting speed of originations and number of customers, many analysts agree. But consumers might not be ready to do online lending yet. BankAmerica set up a home page on the Internet recently for traditional mortgage originations, and didn't see a single application after two weeks. Experts repeatedly mentioned high loan-to-value and subprime credit loans as this year's hottest markets. They also stressed that lenders have to be careful not to get burned. The new focus on high-risk business is driving some of the industry's strongest trends. Most lenders and analysts are recommending a centralized underwriting and processing system, credit scoring, and continuous management of portfolios. Additionally, loss mitigation is preferable to foreclosure and asset freezing. "If we froze all lines of credit that had a decline in equity, we wouldn't be in business right now," said one lender with a heavy presence in California.

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