Commercial mortgage lenders 'severely underutilizing technology'.

By 2008, lenders in the United States will spend more than $186 million on commercial mortgage technologies, while during the same period approximately 70 percent of the top-100 lenders will invest in new or enhanced technologies, according to a report by Boston-based Aite Group.

As many as 75 percent of commercial mortgage lenders are still using home-grown proprietary solutions, while nearly the same percentage of lenders continue to rely on Microsoft[R] Excel[R] spreadsheets for sophisticated modeling and cash-flow forecasts, the report noted.

Complex transaction structures and a lack of standardization have slowed the adoption of technology by the commercial mortgage industry, even as new market dynamics continue to drive change, explained Christine Barry, Aite Group research director and report author.

"Factors such as increased competition and a greater demand for commercial mortgage-backed securities [CMBS] are driving the industry toward a greater use of technology," said Barry. "Today's solutions not only create central repositories and eliminate manual and costly processes, but they also enable lenders to quickly and accurately generate documents for sale in the secondary market."

Aite Group forecasts that by 2008, U.S. commercial mortgage lenders will spend more than $186 million on third-party vendor solutions and enhancements--not including servicing technologies--as origination growth and demand for this type of debt increase.

As lender interest in commercial mortgages--as well as interest in the technology that supports it--increases, look for vendors to follow, with the most likely candidates being those that already offer commercial lending technologies, the survey predicted.

"Vendors that have focused only on components of the commercial mortgage space are also likely to enhance their solutions to handle a greater portion of the process, as financial institutions are increasingly looking to limit the number of vendors they partner with," said the report.

The greatest challenge to technology vendors, the survey noted, will be getting companies to take a longer-term view and invest in technology that may take as long as two years before there is a real payoff.

"The commercial mortgage industry will continue to evolve over the next few years and the technology will be forced to keep up," concluded the report. "Those lenders, as well as technology providers, that do not position themselves one step ahead of the rest may risk losing business to the competition."