HomeBuying 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 consumersas financing a car. In the past, obtaining a home mortgage seemed almostas scary and painful as surgery. Realtors and mortgage bankers were likedoctors with specialized knowledge and a language all their own. Baffledcustomers were forced to trust and hope for the best as the complex processtook weeks to unfold.
In the 1990's, the mortgage industry is using new computer system technologyto meet consumer demand for faster and simpler loans. In particular, customersare reaping the rewards of three important advances in mortgage processingtechnology.
Laptop Computers
Increasing numbers of mortgage lenders are using laptop computers toprocess loan applications-often in the comfort and privacy of a customer'sown home or office. Portable laptops and dot-matrix printers can be setup quickly. Through a small modem and regular telephone line, the laptopconnects with mainframe computers at the lender's home office, as well asat credit bureaus.
Instead of filling out a long, paper mortgage application, customerscan sit back and answer questions as the loan originator types all necessaryinformation into the laptop. With one keystroke, the loan originator cansend a complete application electronically to his or her home office. Toensure privacy and security, customer information is normally encryptedbefore being sent over the telephone lines.
Credit reports are available almost instantly from various credit bureausand can be printed out for the customer's review. Within a few days, thecustomers will know if they qualify for the mortgage amount they need. Withoutlaptop technology, this process may take weeks.
Automated Underwriting
Traditionally, home loan underwriting has taken three weeks to a month-sometimesmore. Recently, both Fannie Mae (Federal National Mortgage Association)and Freddie Mac (Federal Home Loan Mortgage Corporation) have introducedstreamlined automated underwriting systems. Unlike laptop technology, whichis fast becoming commonplace, automated underwriting is still quite new.
Lenders are able to access automated underwriting systems through theirlaptop computers. These systems include a credit scoring component whichrequires less data and reduces application time. As reported in the February5, 1996, issue of National Mortgage Underwriter, lenders who have testedFannie Mae's system are able to import credit bureau information and obtaina credit decision in eight to ten minutes.
The whole process, from application to credit decision, could take underhalf an hour. Fannie Mae's vice chairman Frank Raines says that in additionto fast decisions, automated underwriting will reduce costs to borrowersand lenders.
Automated Appraisal
A one time-consuming step in the mortgage approval process is the propertyappraisal. In this area, two technologies are coming together to resultin appraisals that take only minutes.
Freddie Mac has been building a huge database of information about propertiesall over the country. Instead of obtaining a property appraisal in the traditionalway, lenders can send Freddie Mac a quick electronic request for collateralassessment of the property.
Freddie Mac's computer automatically compares the specified propertywith other homes alreadyin the database, which are of the same type andin the same neighborhood, to establish a value. In most cases, this comparativeassessment is a perfectly adequate replacement for a traditional appraisal.
But lenders need to actually see a property as well as read an assessmentof it. So, in addition to developing a collateral assessment system, FreddieMac and others have been perfecting the technology for electronic transmissionof photos and graphics.
Like automated underwriting, automated appraisal technology is very newand not yet widely used by lenders. But it is the wave of the future.
At the 1995 National Technology in Mortgage Banking Conference, PaulS. Reid, President and CEO of American Home Funding and President Electof the Mortgage Bankers Association of America, told his audience, "Already,consumers' concepts of time and convenience have been fundamentally alteredas a whole world of data and services are instantly available at their fingertipsor at the sound of their voice. Where today, they may be willing to waitweeks, even months, for a mortgage loan, in the not-too-distant future they'lldemand approval within minutes and a closing within days. Not only willour customers expect the process to be quicker, they will demand that itbe made simpler and easier to understand as well."
Because the mortgage business has become highly competitive, home buyerscan expect the trend towards faster and simpler home loans to continue.Mortgage lenders know they must continually increase their efficiency, reducepaperwork and cut costs in order to attract savvy customers. However, tobe a real competitive advantage, technology has to go hand-in-hand withgood old-fashioned customer service.
Brian P. Hedge is Assistant Vice President and Systems Administratorof specialized lending services for Liberty Home Lenders, a division ofLiberty Bank, in Middletown, Connecticut.