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Fishing for the Small Lenders

In 2005, mortgage lenders spent $3.6 billion on technology, an increase of 8% over the previous year, according to a study by Mortech, a Guilford, Conn.-based research firm that focuses on the mortgage industry’s use of technology. That’s respectable growth, but there is a detail that Mortech founder Jeff Lebowitz says should provide cause for concern and, perhaps, an opportunity: Most of the sales were to the largest mortgage banks — tech vendors continue to focus on the 70 large institutions that complete 80% of all originations.

The concern is that any slowdown in commercial real estate lending could produce a mirror slowdown in tech spending. The opportunity is to redouble efforts to reach small and mid-size lenders. Indeed, some technology vendors are hoping to convince these prospects that in a tougher environment, technology can help them compete better for their share of a shrinking pie.

The catch: Getting small and mid-tier lenders to make investments in information systems has been difficult. “Smaller lenders have been slow to pick up technology,” says Lebowitz. On the other hand, he adds, “But the difference in technology adoption rates between large and small lenders may be due to the simple fact that larger lenders have been catered to.”

Still, vendors see an opportunity to give the smaller players affordable access to the next generation of technology. Typically, small lenders could expect to pay $300,000 to $500,000 to buy and implement underwriting software as well as an annual license fee, says Rich Barfus, president and CEO of San Diego-based MDA MindBox Inc., a company that provides lenders with software and services to automate origination and underwriting processes.

In August, MindBox will launch a new Web-based automated underwriting system specifically designed for smaller lenders, Barfus says. MindBox will provide hosting for the program — that is, run and manage it on its own servers — and will base the price on a lender’s size and transaction volume.

“We’re increasingly being contacted by mid-tier lenders who want to acquire technology to become more efficient and to better compete with the large lenders,” he says. “Most of the automated underwriting technology available up until now has been out of reach for those folks.”

MindBox’s service will allow lenders to provide a portal to mortgage brokers and loan officers who will feed in loan applications for processing: The technology typically takes information about the borrower and property, then figures out what loan products would be the best fit based on qualifications.

Another example: In June, mortgage technology providers Del Mar Database of San Diego and Overture Technologies of Bethesda, Md., announced a partnership to offer a new family of Web-based solutions for small and medium-sized lenders. Like MindBox, those companies plan to launch their systems this summer.

The products will give smaller lenders the same competitive technological capabilities that large lenders possess in a tightening origination market, according to John Walsh, president of Del Mar. “Automated product eligibility, pricing and underwriting have become the most critical technologies in mortgage lending,” he said in a prepared statement.

Smaller lenders that have invested in automation say they have seen the benefits. Atlanta-based SouthStar Funding, a wholesale lender that originated $6 billion in fiscal 2005 ended Nov. 31, estimates that it saves $300,000 annually thanks to a recent investment to upgrade technology.

Mortech Click here
MDA MindBox Inc. Click here
Del Mar Database Click here
Overture Technologies

Click here

Southstar Funding Click here

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