The brave new world of artificial intelligence.

Author:Schneider, Howard
Position:Mentoring in mortgage lending - Cover Story

Welcome to the strange new world of "mentoring," where underwriters take computers under their wing and teach them everything they know. That's the future in mortgage lending, and it's like trying to download an underwriter's brain and "compassion."

No longer in mortgage lending is it standard for all loan officers to make calls with nothing more than rate sheets, blank applications and a pen. Today, a growing number of lenders are arming their retail sales force with laptop computers. And some are planning to use artificial intelligence (AI) software to underwrite mortgages on those laptops, while you wait--thus providing instant loan approvals at the point-of-sale.

The list of major mortgage lenders aggressively moving ahead with artificial intelligence capabilities in their origination operations is impressive--and growing. Household International, Prospect Heights, Illinois, is using an "expert system" to underwrite more than half its retail and wholesale mortgage loans. Norwest Mortgage, Inc., Des Moines, ARCS Mortgage, Inc., Calabasas, California, and Countrywide Funding Corporation, Pasadena, also are currently developing similar systems. Home Savings of America, FSB, Irwindale, California hopes to have a "sophisticated credit scoring" system in place early next year, according to a top executive. A source within Fleet Mortgage Corporation, Milwaukee, says that institution is interested in artificial intelligence, and industry sources say that Fannie Mae also has licensed AI software.

Growth of automation

It's no secret that technology is rapidly and irrevocably changing mortgage lending. Consumers enjoy faster processing, and lenders find they can handle variations in volume more easily now than ever before. In addition, lenders enjoyed better profits on this year's business, because they did not have to hire as many new production staff to handle the increased business, as they did during prior spikes in volume. Streamlined processing requirements adopted by Freddie Mac and Fannie Mae, plus automation integrated into lending operations since 1987, combined to help the work flow during the current refi boom.

Computers now can hold the necessary information regarding which documents need to be drawn up for closing different types of loans. With this kind of assistance, a temporary worker, lacking a mortgage background, can be hired to help handle the additional volume in a closing department. With proper supervision and a good automated system, a clerical worker can make loan closing more productive immediately.

Servicing takes the lead

Further evidence of the heavy inroads made by technology in all aspects of mortgage banking is readily apparent in the servicing area. Instead of preparing tax and insurance bills and sending them out, many servicers exchange computer tapes. Tape-to-tape insurance renewal started at Mortgage Guaranty Insurance Corporation (MGIC) in 1978, says Richard Lembach, manager of automated services. Computers can quickly sift through thousands of borrower accounts to see who needs to pay, disburse the funds and then update records on the computer tapes.

Because automation lends itself to repetitive tasks, servicers have found many uses for technology. Today some servicers are starting to scan loan documents into imaging systems, so that customer service representatives can immediately find the information they need to answer an inquiry. When used on a computer network, people in different departments can look at the same document simultaneously.

Faster service and reduced reliance on staffing should translate into better profits and happier customers. Yet not all technology works, and there is a cost to being on the cutting edge. For instance, computerized loan origination (CLO) networks have been tried numerous times by large companies, with mixed results, at best.

Loan origination aids

But loan officers for some firms today, with the aid of technology, can grant approval at the time of application, conditioned only upon an appraisal. Doing so provides an efficiency the mortgage market has never quite experienced before.

Today, sales representatives for B.F. Saul Mortgage, a subsidiary of Chevy Chase Federal Savings Bank, have "well over half of their applications approved" in a few seconds, says Chief Information Manager Robert Spicer. Maryland-based B.F. Saul's MortgageVision system allows originators to electronically capture credit report information by having laptop computers dial into credit data repositories immediately after taking a loan application.

Credit and application information then is sent to an artificial intelligence system, which either approves the file or refers it to a human underwriter. If the loan is approved by the AI system, the loan officer can let the happy borrowers know immediately. B.F. Saul set up Mortgage Vision three years ago, according to Spicer.

Spicer also notes that...

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