Electronic Intermediaries in Primary Mortgages
Introduction to New Intermediaries
Consumers and lenders have long recognized the inadequacies and inefficiencies of the mortgage-origination market. These problems are deeply rooted in the fragmented nature of the mortgage business. The conversion of the mortgage-origination process to a full-service, Web-based electronic channel stands to drastically lower mortgage closing costs. Clicking away in the relative anonymity and flexibility of the Internet will give consumers a sense of power rarely experienced until now. Providing consumers with direct access to mortgage-product and pricing information creates downstream challenges for lenders and other mortgage-service providers.
For years, industry professionals have searched for better ways to conduct business, and borrowers have wished for a less confusing process. Now technological advances finally show tremendous potential for smoothing the way. The Internet has emerged as an instant, ubiquitous channel for information exchange. Consequently, the medium is capable of passing product, pricing and application-status information through the entire mortgage-processing pipeline faster and cheaper-to the advantage of both borrowers and lenders. In fact, it was envisaged that a significant shift in mortgage-origination business to an online environment will change the very dynamics of the lender-customer relationship, for the first time putting consumers squarely in the driver's seat.
The conversion of the mortgage-origination process to a full-service, Web-based electronic channel stands to drastically lower mortgage closing costs. Currently the mortgage closing costs are in the range of 3 percentage points and online efficiencies should eliminate nearly 2/3 of the prevailing 3 percentage-point origination fee, according to Microsoft estimates. The savings would be substantial. On a $100,0 00 mortgage, for example, a borrower would save $2,070 of the $3,000 closing costs (equal to 3 percent of the mortgage amount), paying a more easily digested tab of only $930.
However a full-fledged shift to online mortgage transactions will not take place immediately-or mobilize all customers equally because of the complex nature of mortgage financing. The reasons being that apart from making decision on the lender and the particular financing product a consumer has to comply with various requirements in order to obtain mortgage financing successfully. The various activities involved in mortgage financing are detailed as below:
The mortgage loan process can be arduous and time consuming even in the present online mode. A detailed application process, financial and credit worthiness investigation, and extensive disclosure requirements must be completed in order for a wholesale lender to evaluate a consumer's home loan request.
This complex nature of the mortgage transaction is the reason behind the thriving of the mortgage brokers in this industry. The broker works as the liaison between the borrower and the lender to create a cost effective and efficient loan process. Also many low income borrowers with less than perfect credit histories would not have been able to purchase their dream home without the assistance and dedication of a mortgage broker.
Although the internet has resulted in the automation of lengthy and tedious documentation process involved in the mortgage financing it has however not eliminated the key role played by the mortgage broker. After the advent of the web based electronic commerce the mortgage industry has seen the emergence of various intermediaries taking different roles to facilitate better and easy mortgage financing for the consumer.
The various electronic intermediaries which have emerged after the advent of internet in the primary mortgage market can be broadly classified as below: