Community banks beef up mortgage systems

Mortgages are hotter than ever, and many community banks are responding by enhancing their mortgage systems.

Given the recent influx of mortgage originations, coupled with low interest rates, home loans have become a product that bonds customers to a financial institution more than ever before.

U.S. mortgage originations have quadrupled in the past decade from just over $458 billion in 1990 to a little more than $2 trillion in 2001, according to TowerGroup.

According to the Ninth Annual Survey of Community Bank Executives, conducted by Grant Thornton in 2001, mortgages topped the list of products and services that community banks either offer or plan to offer in the next three years. Eighty-eight percent offer mortgages today, and 95 percent of those surveyed said they would in three years. And many are using new technology to help them become more attractive to consumers.

During the past decade, retail banks have become the dominant forces in loan origination and loan servicing, said Craig Focardi, analyst for TowerGroup, in a recent report. However, community banks remain competitive.

Increased Productivity

East Boston Savings Bank, a $650 millionasset stock savings bank based in East Boston, Mass., reported recently that the new mortgage system it began licensing from Fiserv Inc. nearly three years ago has substantially improved productivity. Since 2000, East Boston Savings has been using Windows-based easyLender softwarewhich replaced an older MS-DOS systemfor its mortgage, consumer and commercial lending operation.

Pricing for the easyLender site license begins at about $25,000 for the first year plus maintenance costs. If a bank chooses options like interfacing with Freddie Mac, Fannie Mae and Fair, Isaac, licensing costs can run up to as much as $150,000 per year. To offset the costs, easyLender can be used to cross-sell other lucrative loan products.

The bank also uses the system to support its connections to Mortgagebot, an online service that forms the bank's easy-to-use front end interface, which ties into the easyLender system that drives the actual originations. Mortgagebot, a spinoff of the former M&I Bank, often markets its interface in tandem with Fiserv's lending solution.

Philip F. Freehan, executive vice president of East Boston, said the bank has increased mortgage loan volume by 40 percent, while reducing the number of dedicated staff. The new easyLender system boosts productivity by automatically uploading loan data to the bank's core processing system. In addition, the bank is working on a strategy to reach out to a broader audience of mortgage borrowers over the Internet using Mortgagebot's interface.

Freehan described online borrowers as an untapped market. "They're not the customers of the past-they're the customers of the future," he said. Members Mortgage, a mortgage services firm in New England, recently launched the first 24/7 online mortgage service, which allows its members to originate mortgages any time of day using Fannie Mae-backed technology.

While Fiserv and its customers are trying to connect with prospective borrowers online, another service provider helps banks reduce costs and reach prospective borrowers by phone. Vysym Corp., an Irvine, Calif.-based provider of transaction processing solutions for financial services companies, recently introduced a new version of its automated "tele-lending" system called TALIS.

Vysym estimated that the cost of originating a loan through its new telephone systems averages $2.76, compared to $12 to $50 per application for a third-party call center. Pricing for the voice-based lending system starts at about $200 per month for a service bureau arrangement, and the onetime site license costs about $30,000, including equipment.

A Vysym-sponsored report claims that automated telephone platform prices compare favorably to the Web. The company has more than 100 credit union and bank customers.