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Buying a House is as Easy as Buying a Car
by Brian Hedge, Liberty Bank
New technology will soon make obtaining a home loan as simple for consumers as financing a car. In the past, obtaining a home mortgage seemed almost as scary and painful as surgery. Realtors and mortgage bankers were like doctors with specialized knowledge and a language all their own. Baffled customers were forced to trust and hope for the best as the complex process took weeks to unfold.
In the 1990's, the mortgage industry is using new computer system technology to meet consumer demand for faster and simpler loans. In particular, customers are reaping the rewards of three important advances in mortgage processing technology.
Laptop Computers
Increasing numbers of mortgage lenders are using laptop computers to process loan applications-often in the comfort and privacy of a customer's own home or office. Portable laptops and dot-matrix printers can be set up quickly. Through a small modem and regular telephone line, the laptop connects with mainframe computers at the lender's home office, as well as at credit bureaus.
Instead of filling out a long, paper mortgage application, customers can sit back and answer questions as the loan originator types all necessary information into the laptop. With one keystroke, the loan originator can send a complete application electronically to his or her home office. To ensure privacy and security, customer information is normally encrypted before being sent over the telephone lines.
Credit reports are available almost instantly from various credit bureaus and can be printed out for the customer's review. Within a few days, the customers will know if they qualify for the mortgage amount they need. Without laptop technology, this process may take weeks.
Automated Underwriting
Traditionally, home loan underwriting has taken three weeks to a month-sometimes more. Recently, both Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) have introduced streamlined automated underwriting systems. Unlike laptop technology, which is fast becoming commonplace, automated underwriting is still quite new.
Lenders are able to access automated underwriting systems through their laptop computers. These systems include a credit scoring component which requires less data and reduces application time. As reported in the February 5, 1996, issue of National Mortgage Underwriter, lenders who have tested Fannie Mae's system are able to import credit bureau information and obtain a credit decision in eight to ten minutes.
The whole process, from application to credit decision, could take under half an hour. Fannie Mae's vice chairman Frank Raines says that in addition to fast decisions, automated underwriting will reduce costs to borrowers and lenders.
Automated Appraisal
A one time-consuming step in the mortgage approval process is the property appraisal. In this area, two technologies are coming together to result in appraisals that take only minutes.
Freddie Mac has been building a huge database of information about properties all over the country. Instead of obtaining a property appraisal in the traditional way, lenders can send Freddie Mac a quick electronic request for collateral assessment of the property.
Freddie Mac's computer automatically compares the specified property with other homes alreadyin the database, which are of the same type and in the same neighborhood, to establish a value. In most cases, this comparative assessment is a perfectly adequate replacement for a traditional appraisal.
But lenders need to actually see a property as well as read an assessment of it. So, in addition to developing a collateral assessment system, Freddie Mac and others have been perfecting the technology for electronic transmission of photos and graphics.
Like automated underwriting, automated appraisal technology is very new and not yet widely used by lenders. But it is the wave of the future.
At the 1995 National Technology in Mortgage Banking Conference, Paul S. Reid, President and CEO of American Home Funding and President Elect of the Mortgage Bankers Association of America, told his audience, "Already, consumers' concepts of time and convenience have been fundamentally altered as a whole world of data and services are instantly available at their fingertips or at the sound of their voice. Where today, they may be willing to wait weeks, even months, for a mortgage loan, in the not-too-distant future they'll demand approval within minutes and a closing within days. Not only will our customers expect the process to be quicker, they will demand that it be made simpler and easier to understand as well."
Because the mortgage business has become highly competitive, home buyers can expect the trend towards faster and simpler home loans to continue. Mortgage lenders know they must continually increase their efficiency, reduce paperwork and cut costs in order to attract savvy customers. However, to be a real competitive advantage, technology has to go hand-in-hand with good old-fashioned customer service.
Brian P. Hedge is Assistant Vice President and Systems Administrator of specialized lending services for Liberty Home Lenders, a division of Liberty Bank, in Middletown, Connecticut.