Shopping the country for a mortgage is the promise behind computerized loan origination systems. It's a home-loan-shopping tool that can potentially expose borrowers to a much broader selection of mortgage products than they could find on their own.
Still, the idea of using a computer station in a realty agent's office to search for the best mortgage interest rates and terms has never quite caught on. The notion, though, has been kicking around since 1982.
But the Department of Housing and Urban Development recently gave the idea an important push that some lending industry officials said could ultimately change the way mortgages are made in this country.
HUD Undersecretary Alfred A. Dellibovi said he envisions the loan-shopping systems as a way to "harness computer power to best serve our constituents, the home buyers, to get them the best deal," whether it comes from a local, regional or national lender.
In time, the computerized systems may challenge the conventional role of mortgage banker, some mortgage officials predict.
Others in the lending industry are, however, more skeptical about the revolutionary aspirations of the systems, arguing that real estate agents and borrowers will never feel comfortable with the loss of direct contact with lenders.
Last month, HUD positioned itself as a champion of computerized-loan systems when it announced it was removing obstacles to their further development.
The decision ended years of indecision on the federal government's part fueled by squabbles between the real estate and home-lending industries over the role the systems should play.
Specifically, HUD proclaimed that fees paid by borrowers to real estate agents for access to these systems do not fall under the definition of an illegal kickback.
That favorable HUD ruling could encourage expansion of the handful of systems now in operation, as well as spawn new competitors, some observers say.
Carl M. Berkelhammer, a principal with Summit Mortgage Group in Tysons Corner, is among the confirmed believers.
The automated comparison-shopping system is "absolutely the wave of the future," Berkelhammer said. "Borrowers have got to have the ability to access diverse lenders. The way of the single-source lender is the way of the past."
Berkelhammer's mortgage brokerage owns the Washington-area franchise representing Dallas-based American Financial Network, a computerized shopping service that lists products for 100 different lenders. Summit Mortgage operates the computer link-up out of 20 local Shannon & Luchs realty offices.
The systems give borrowers their own "advocate" in the form of the financial services representative working out of the realty office, said John J. Pembroke, president of American Financial Network. Besides the Washington area, the shopping service is available in realty offices in 14 other Eastern cities.
The financial services representative acts more like a mortgage broker who works for a number of lenders than the traditional loan officer who serves a single master, Pembroke said.
Depending on the arrangement, the financial services representative helps the borrower select a loan, takes the loan application, verifies employment and asset information, orders a credit report and tracks the loan's progress while the chosen lender decides whether to approve it.
The financial services representative and other consumer benefits -- such as the capability to match borrowers to the best mortgage type and immediate substitution of lenders when a loan falls through -- give computerized loan systems a leg up on the conventional lender competition, Pembroke said.
Matthew Broderick, executive vice president of the Home Mortgage Network operated by Schlott Realtors in Wayne, N.J., went so far as to predict that the alternative loan delivery systems could someday supplant the traditional role of the mortgage banker.
The systems, he said, will replace the "unproductive and inefficient way" of originating loans typified by the loan solicitor "who has schmoozed some real estate sales people to the point they refer business to him or her."
Schlott currently operates its 50-lender system in New Jersey, New York, Connecticut and Pennsylvania but plans to expand nationally next year, Broderick said.
Kuran Khanna, a vice president with Prudential Real Estate Affiliates in Costa Mesa, Calif., said he believes the seven-year-old computerized loan-shopping business can command 20 percent to 25 percent of the mortgage market in five years.
That, he said, would give the alternative mortgage-delivery system as much time as it took the banking industry's automated-teller machines and the real estate industry's multiple-listing services to grab hold.
Khanna runs Prudential's recently revived CLOS system, a loan-shopping network of five to seven national and regional lenders available only to Prudential real estate agents and their customers.
Norman Flynn, president of the National Association of Realtors, said he expects to see a proliferation of new entries into the field over the next three to five years. However, he said he expects lenders, not real estate companies, will prove to be the driving force behind the expansion.
Proponents of the computerized systems are fond of comparing the systems' potential to that achieved by the airline industry's computerized-reservation service.
The analogy casts the financial services representative in the realty office in the role played by the travel agent, juggling reams of competitor information to come up with the best deal for the customer.
If the start-ups prove similar, then the loan-shopping services will have to surmount obstacles just like the reservation system did as it evolved, said Stephanie Maxson Kenyon, assistant vice president of industry affairs for the American Society of Travel Agents.
The first reservation services, she noted, were biased to favor the flights of the airline that developed the system and it cost direct competitors more to show their schedules.
Angelo Mozillo, president of Countrywide Funding Corp., a nationwide lender based in Pasadena, Calif., takes a dim view of airline industry and mortgage lending comparisons. A known number of airlines, he said, work with the same fixed schedule of flights day after day.
On the lending side, a complete mortgage-shopping system would have to display an "astronomical number" of programs just to represent all the lenders and their products in a single city, let alone the rest of the country, he said. Moreover, the mortgages lenders offer vary from day to day depending on the capital at their disposal, he said.
Robert M. O'Toole, a senior staff vice president with the Mortgage Bankers Association of America, scoffs at the idea that the computerized systems would ever displace mortgage bankers, pointing out that several such ventures have already died off.
Moreover, O'Toole said, real estate agents, as well as the buyers they counsel, prefer a "personal relationship" with a lender.
Robert Horner, head of St. Louis-based Citicorp Mortgage and its sole-lender MortgagePower computerized loan service, said he believes the computerized systems will become important players in the mortgage origination business but that mortgage bankers will act to preserve their livelihood.
Their best shot at doing so, Horner said, is to capitalize on the personal contact that the borrower favors by "leapfrogging" over the real estate agent and going directly to consumers.