Home mortgage lending moves into technology age


September 18, 1994|By Kenneth R. Harney

Washington -- The future shape of American home mortgage lending was put on display here for the first time on Sept. 9, and the odds are strong: Once you've seen, shopped and applied for a mortgage using a multilender computerized loan origination (CLO) system, you'll never want to go back to the past. Or to the present.

In fact, you'll probably ask yourself: Why has the process of getting a mortgage -- the biggest single debt I may incur in my lifetime -- been stuck in the horse-and-buggy age for so long? If technology exists that empowers me to identify and

analyze dozens of competing loans -- and to choose the most advantageous mortgage according to my own financial and personal needs -- why am I flipping through the Yellow Pages with no idea what's best? Why am I borrowing tens or hundreds of thousands of dollars so blindly?

That was the main consumer question before mortgage industry executives and federal officials who gathered for a CLO technology demonstration. As the name suggests, CLOs are interactive electronic systems that not only display local and national lenders' current loan offerings and underwriting criteria, but actually take the consumer through the application and funding commitment stages.

CLOs enable you to sit in a real estate agent's, builder's or mortgage broker's office and shop the market with a precision you've never experienced before. Rather than getting truth-in-lending good faith estimates on finance charges and closing costs days after you've applied for a specific loan, a CLO system enables you to see everything on your settlement sheet for every loan you're considering. If you spot junk fees or unusually large charges from a particular lender, you simply don't apply.

You can also scroll into the future to evaluate alternative loan types or terms, and find out which competing mortgage today will have the lowest effective rate or cost at intervals you choose -- say four years down the road.

For example, a loan with a low rate but high points up front will give you a higher effective cost if you pay it off early vs. a higher-rate loan with low points. (Each point is 1 percent of the loan amount, paid up front.) But in what year does the high-point, low-rate alternative cross the line, and become cheaper in terms of total interest outlays for you? The CLO supplies the analysis for you, loan by loan, with easy-to-understand graphics in color on a computer screen.

You can check out dozens of loans -- fixed rate, adjustables, short-term balloons, sub-par credit mortgages, jumbos -- depending on the particular CLO you use. You can also figure out which loans will allow you to buy the maximum amount of house for your budget, given the down payment and settlement cash you have on hand.

Best yet: You don't have to wait long to be able to do all this. CLOs are either coming soon -- or have already arrived -- in your community. Major real estate brokerage, banking, and home building firms are scrambling to negotiate with CLO sponsors to bring their systems to their offices. One of the largest CLO programs, the so-called MARS system, is either fully operational or is at the staff training level in several dozen realty firms across the country, according to Matthew Broderick, executive vice president of GHR Systems, Inc., the corporate sponsor.

GE Capital Mortgage Services' Residential Express (REX) CLO is on line at 70 banks around the country, and will soon be offered through the realty offices of members of the National Association of Real Estate Brokers (NAREB), a trade group of predominantly minority realty sales firms.

A third large CLO -- the DIMEX (Digital Information Mortgage Exchange) -- is at the introductory stage with realty brokers in the Northeast and Mid-Atlantic states. Sponsored by Infotrust, Inc., the DIMEX system offers borrowers national "wholesale" mortgage rates -- discounted by the two points or more that local mortgage companies would normally add to a national lender's actual rate. The cost of using the CLO to the borrower: No more than $400, including $150 to Infotrust and up to $250 to the local realty firm or builder using the system.

Besides the ability to provide on-line, interactive evaluations of loan packages for home shoppers or borrowers, the DIMEX CLO holds out the promise of saving consumers thousands of dollars on loan transactions. In one recent case, according to Brice E. Macartney, president of Infotrust, a homebuyer eliminated $5,400 worth of local brokerage fees by applying for a national lender's mortgage at the wholesale quote, not the local retail.

The bottom line of all this for you: CLOs are about to explode on the home mortgage scene. Since there are a growing number of competing systems, make sure you get full disclosure from the real estate agent or builder on the costs of using any particular system.

Make sure, too, that the CLO you use offers multiple lenders -- national and local -- and warrants to you that it is "lender neutral." You don't want a system that steers you to a particular lender's products: You want to do all the steering yourself.

Kenneth R. Harney is a syndicated columnist. Send letters care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071.

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