Easy Access
Internet service helps make quick work of mortgage approvals

by Gary R. Crum

We have met the enemy and they is us.” That spoof of a famous line written by Walt Kelly, creator of the Pogo comic strip, could easily be referring to the paper-intensive mortgage business. The recent refinance rush overwhelmed almost all lender resources while frustrating borrowers, lenders and staff alike.

The sheer volume of mortgage refinances had borrowers chafing at the long wait just to make a mortgage application. Then they endured a still longer wait for an approval. Loan officers struggled with the paperwork and processors put in long hours trying to meet complex underwriting rules.

For $500 million-asset Kennebunk Savings Bank, in Kennebunk, Maine the answer was to automate the process, a measure executives hoped would not only speed turnaround times, but also work across their distribution channels—branches, the Internet and the bank’s call center operation.

Martha Muldoon, senior vice president of marketing and special projects, was assigned the project. Her careful research led her to Mortgagebot, an Internet service provider that has had much success in providing automated applications. The service is available free to banks using the ICBA mortgage program, ICBA’s secondary mortgage market access provider.

“Mortgagebot is great for us,” says Muldoon. “It is a very sophisticated product and is incredibly easy to work with. I have worked with many Internet vendors but Mortgagebot was far the most sophisticated and organized.” She

“When we started the process of setting up our loans on the Mortgagebot system, we discovered many process issues that we could improve.” —Martha Muldoon,Kennebunk Savings Bank

says she also liked the fact that the application is Internet based and required only a link to Kennebunk Savings’ existing Web site.

“One of the primary benefits of an online mortgage application is that it does not take any IT support or software installation on the bank’s computers,” says Scott Happ, president of Mortgagebot. “The application supports loan officers, branch personnel or customers alike from an Internet base. By using this one source of loan originations, the bank can control the information that is given to the customer, assuring uniform products, pricing and initial disclosures through all delivery channels.”

Regulatory compliance is critical to the mortgage process, so Mortgagebot provides initial disclosures to the borrower electronically and will soon roll out an electronic three-day disclosure. To ensure that every application is complete and accurate, one of the most important features of Mortgagebot is the dynamic application process.

Even the most inexperienced person can take an app, because the system is intelligent and asks the right questions based on answers provided by the borrower. In addition to the mortgage application, the Mortgagebot site offers calculators for the borrower and bank personnel to pre-qualify borrowers and to run payment scenarios for different products.

“When we started the process of setting up our loans on the Mortgage-bot system, we discovered many process issues that we could improve,” says Muldoon. “We redefined our mortgage processor’s role as a result.”

What does the whole Mortgagebot system cost? “Our basic system setup costs $5,000 and we charge a fee per loan,” says Happ. “So the startup is very reasonable and the continuing cost is tied to loan volume.”

Fees include the automated underwriting fee charged by Fannie Mae or Freddie Mac, credit report fees and the per loan fee charged by Mortgagebot. The company’s customer base consists of 175 banks, 87 credit unions and 40 investment bankers.

Made to Order

While some banks like Kennebunk Savings have chosen to process their own loans, others don’t have the resources or even desire to build a mortgage department. For those institutions, a number of options are available through ICBA’s service subsidiary ICBA Mortgage, which links community banks to the secondary mortgage market.

ICBA Mortgage has partnered with RBMG Mortgage, a national mortgage lender, to provide several levels of service to banks. These include co-branding a Web site that will have the look and feel of the

sponsor bank. Customers will enter the site through the bank’s home page, complete the Mortgagebot application and receive an instant decision. RBMG then takes the application through processing and closing. Interest rate risk and

While self-originated Web-based mortgage originations are about 10 percent of all applications. Today, this number is projected to grow to 25 percent within five years.

credit risk is transferred from the bank to RBMG.

Community banks that want to continue their relationship with their customer may elect to have ICBA Mortgage service their mortgages under a private-label arrangement with RBMG. Or the servicing may be sold to RBMG along with the loan to maximize immediate income. RBMG will not resell the servicing or solicit bank customers.

Exploring the Options

Bankers have other options to choose from as well. Fannie Mae offers an online mortgage application, called Instant Pre Approval. This application gives the borrower a pre-approval letter after the borrower answers a short series of questions, but does not have the bells and whistles like the disclosures you find at Mortgagebot.

However, it does provide an online answer for the borrower. The loan is then underwritten using Fannie Mae’s Desktop Underwriter, which automatically merges the borrower’s credit information into the application. The application may then be downloaded to the lender’s mortgage processing system to complete the process.

Cost of the system varies based on options, according to Steve Carter, a technology consultant in Fannie Mae’s Atlanta Office. Submitting loans through Instant Pre Approval incurs the same underwriting fees as through Desktop Underwrite. A flat monthly fee covers any amount of loans that are submitted.

Several other service providers such MyersInternet and Ellie Mae construct mortgage site Web pages. These include mortgage applications but the information must be downloaded and then sent to underwriting through Fannie Mae’s Desktop Underwriter or Freddie Mac’s Loan Prospector.

A visit to Mortgage Technology’s Web site, www.mortgage-technology.com, can provide even more options as to software and service providers for the mortgage industry.

In addition to the obvious advantage of having a mortgage application available to customers 24/7, these applications provide several other strong marketing advantages, including a direct link to the secondary mortgage market providers Fannie Mae or Freddie Mac.

Information gathered by the application is fed to the powerful automated underwriting systems developed by Fannie Mae or Freddie Mac, and a decision is rendered almost immediately. The decision includes a set of instructions for the processor on what documentation is required to complete the loan transaction.

This documentation is much less than what is required by traditional underwriting, making it easier on the customer and allowing the process to be completed faster. In fact, in about 20 percent of the loan applications being underwritten by Fannie Mae, the appraisal is waived for certain approved lenders.

“By analyzing the credit assessments done by Desktop Underwriter, we found that lower-income families have credit histories that are just as strong as wealthier families,” Fannie Mae CEO Frank Raines said in a speech to the National Association of Home Builders. “As a result, 44 percent of Fannie Mae’s business is now conducted with low- and moderate-income families.”

Freddie Mac forecasts that automated underwriting will help put three quarters of a million of today’s renters into first homes. Eighty percent of these will be low-income or minority families. What’s more, $100 million will be saved in interest for borrowers in addition to an estimated $2 billion in closing costs savings annually, according to the government-sponsored entity.

Freddie Mac forecasts that automated underwriting will put three quarters of today’s renters into homes.

The evidence is compelling. While self-originated Web-based mortgage originations will be about 10-15 percent of all applications in 2003, there are projections that this number will grow to 25 percent over the next five years.

More importantly, Web-based mortgage automated applications offer the community bank a way to originate all mortgages. Combined with the services of ICBA Mortgage, that means providing a fast, professional, user-friendly product with minimal costs and training.

Gary Crum is a free-lance writer in Melbourne, Fla.

REPRINTED WITH PERMISSION FROM INDEPENDENT BANKER • COPYRIGHT BY ICBA