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The mortgage industry has seen huge explosions of business during the refinancing boom -- and has also gotten a huge productivity boost from the Internet. One leader in that push has been IndyMac Bancorp (NDE
) in Pasadena, Calif. Not wanting to build a nationwide network of centers to coordinate its relationships with loan brokers, IndyMac instead built a Web-based system called Electronic Mortgage Information & Transaction System, or E-MITS.
Implemented beginning in 1998, E-MITS' key innovation was a real-time loan-approval and -pricing system that took weeks out of the application process by automating it and most of the rest of the process as well. Later on, IndyMac also built a successful online mortgage site aimed at consumers who don't use a loan broker.
The result: IndyMac's processing costs are about 40% less than the industry average as recently as 2000, which has spurred a wave of innovation from rivals seeking to catch up. CEO Michael W. Perry recently talked to BusinessWeek E-Business Editor Timothy J. Mullaney about E-MITS. Following are edited excerpts of their conversation:
Q: Take us back to 1998. What was the problem you were trying to solve?
A: We had been doing business mostly with very large mortgage-banking companies, buying loans in bulk. We couldn't go more directly to mortgage brokers or to consumers. We wanted to move closer down to the consumer, because the further you are from consumers the less value you add. And like in any other business, the more value you add, the more you get paid.
We could have done it like everyone else, opening new regional offices and manual [application] processing, or we could use the Web and build a risk-based, price-based platform. I think we said: Here we are, getting into a mature business, and we wanted to look at it and say there are disadvantages and advantages to being the late-comer in a lot of businesses. The advantage is that new technology can let you leapfrog existing companies. Wal-Mart (WMT
) leapfrogged retailers and came out of nowhere. We thought we might do O.K. without E-MITS but wouldn't leapfrog ahead.
So we developed a platform to give instant, precise answers that customers had never had before. Our concept was, consumers would be slower to do financial transactions over the Web. But loan brokers and realtors would be more comfortable. So we built that up and then went after the consumer side later. The real meat behind IndyMac and the Web is the risk-based pricing. You can copy our look and feel, but you can't copy our pricing engine.
Q: Tell me what E-MITS does and how it works.
A: It allows anyone -- a consumer, a broker, a realtor, a community financial institution -- to submit about 50 pieces of information about a consumer looking for a home-mortgage loan. We automatically pull credit and can underwrite and price the loan.
There are only two pieces of information we have to verify after the fact, and soon we won't have to do that. One is a manual home appraisal -- and in many cases an automated appraisal will be acceptable. And we have to verify your income. But over time, companies are going to link. The ADPs (ADP
) and PeopleSofts (PSFT
) of the world, if we have an authorization from a consumer, are going to be able to verify consumers' income without tax returns and pay stubs.
Where it's headed is loans in minutes, electronically. It's a lot like the stock-brokerage business. Some consumers will want to do it all themselves, and they'll get the most efficient price. And many will want to have an adviser, like a mortgage broker, and they will pay for that value-added service.
Q: How does your system make applying for a mortgage faster or cheaper?
A: What it does is allows a mortgage broker to immediately get both an answer and a price. They're not messing around with applications for days on end, then submitting it, not knowing whether it will get approved or if the rate will be acceptable to the consumer. If your home value is correct and your income is correct, you're done.
In the old days, they'd put a whole package together, and it would cost a couple hundred dollars. And they would spend another couple hundred underwriting it. That results in many more weeks processing a loan. Changing it means the whole industry doesn't work on deals that never close. The industry works on real deals, instead of spending a lot of time on consumers who won't get approved or who won't accept the price.
Q: That's good for the industry. What's the consumer's skin in the game?
A: think we can close loans in days today. Over the next few years, you'll see the closing process get to the point where it's greater than the consumer's desire to close fast. Most people don't want to close in a day -- they've got to sell their old house, they've got to move. You'll see speed faster than the consumer wants or needs -- the capability will be there.
The costs: We're moving some operations to India at about 40% of the cost. Over the next five years, I think we can get our costs down about 50%. To a person with a $300,000 loan, that's a thousand dollars in closing costs.
Q: How much faster will loans close as Net mortgage processing gets better? Will there still be a place for loan brokers, or will everyone just apply online?
A: The self-service Web sites are going to get better and better, and instead of the consumer closing by signing a physical group of papers, they're going to get their papers electronically, and an escrow agent will come to them to handle the closing electronically in the field. It's going to be like a credit card, where you sign with a digital pen.
All this automation is going to mean more choice for the consumer. We're never going to have a situation where mortgage brokers don't exist. But people will have choices from full service to self-service.