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Doing business in a Web-based world.

Web-based technology is playing a growing role in the business world. In the mortgage industry, the technology offers great potential for users, whether they choose to access value-added networks, the Internet or private Intranet applications.

How many of us marvel at the proficiency our young children show in navigating the Internet? Picture it. Here you are a successful professional, completed business school or moved through the ranks of your company, with years of experience under your belt. You've invested countless hours learning how to use your personal computer (PC) and its applications. Then you go home one evening and see your nine- or 10-year-old son or daughter on your PC effortlessly navigating through the Internet with the dexterity of a concert pianist. It's the wave of the future that has just begun to build. Your kids represent the juggernaut.

The American household has adopted not just computer technology but also Web technology as a means to find and obtain information to communicate and to entertain. Web technology - defined as the infrastructure of servers and systems has unlocked a whole new world. When you think that approximately 40 percent of American households have a PC - many have more than one - computers and Web technology are positioned to revolutionize the way we live in the next century much like the television and the automobile have changed society in this one.

Among the primary reasons for the widespread adoption of PCs in American households is that the Internet and services such as the Web allow us to explore and learn about our world, interact with a community without physical boundaries and attend to our daily personal management activities such as banking and purchasing goods and services. Browsing, viewing, capturing information, "talking" to friends and relatives across the country or across the ocean are just a sampling of what can be done.

The backdrop of these changes and their effect on our personal lives, begs the question: How are businesses leveraging public and private networks and Web technology for purposes of conducting commerce? The financial services, chemical manufacturing, automotive and aircraft industries are just a few that have made huge strides in adopting Web-based technology. Many have achieved this adoption of technology via an "intranet" or value-added networks (VAN). It stands to reason the mortgage industry cannot be far behind. The use of mortgage industry-specific VANs is changing the way lenders, servicers and others whose livelihood is tied to mortgages, do business.

Can the industry transform the way lenders and servicers send and store information, communicate with each other and dozens of trading partners and satisfy the needs of customers and investors? Web technology offers a glimpse at the answer to that question. Over time, mortgage industry participation in the form of business-to-business commerce will grow. More and more consumers will not just look for a mortgage, but potentially, close a loan using Web technology. As security measures become more sophisticated, business people and consumers will be more willing to use the technology.

Novel applications

We're already seeing Web technology used in novel and sophisticated ways.

* Banks use electronic cash systems via new companies with futuristic sounding names.

* Third-party firms and contractors perform back-office functions using value-added networks, allowing some companies to reduce costs, provide for just-in-time process cycle times and improve responsiveness to customers.

* Companies exchange and download documents.

* Intranet usage has increased international exchanges and business development.

* One British conglomerate completes transactions of gas sales with its regular customers using a value-added network.

* Software applications are updated directly to businesses via file transfers.

According to CFO, The Magazine for Financial Executives (Nov. 1996), U.S. companies conducted approximately $300 billion in transactions among trading partners using electronic data interchange (EDI) over VANs. By 1995, the value-added network market generated more than $5 billion in revenues to the leading eight value-added network companies, up from $3 billion in 1993, according to Clay Ryder, senior industry analyst, Zona Research, Redwood, California (Seattle Times, 6/2/96).

Value-added networks enable users to send a large volume of data securely, in a format based on electronic data interchange that is understandable to both sender and receiver. Freddie Mac offers EDI support through its value-added network, GoldWorks, so users have at their fingertips translation services to exchange data with a variety of business partners in industry-accepted formats. In essence, a value-added network, and access to it, is becoming an essential business tool.

The mortgage industry will continue to embrace private and public networks and Web technology (i.e., both VANs and the Internet), so long as they are the appropriate tools in conducting business and providing customer service. In the years ahead, the use of Web technology and value-added networks will continue to form the cornerstone of Freddie Mac's strategy to deliver business applications to our servicer community.

It seems logical that, over time, Freddie Mac's Midanet for the PC, as well as other non-Web-based technology interfaces, will fade away, replaced by more sophisticated Web technology. Midanet uses technology that has served its purpose. But similar to the transistor, it may not support the potential applications to be added during the next few years. Like the compact disk that replaced the eight-track tape, Web-technology will enhance electronic capabilities and enable information systems to realize greater potential.

Mortgage bankers from across the spectrum, large and small, are already using Web technology, and many have plans for expansion.

Valley National Bank

Like many other institutions, Valley National Bank, Wayne, New Jersey, has a Web site that it periodically updates. Externally, the institution posts rates on mortgage and consumer products on a number of bulletin boards via the Internet. "We get lots of lead generation and a respectable percentage of leads that we can convert to closed loans. It's a cost-effective way for us to generate business," says Senior Vice President Al Engle.

Internally, says Engle, Valley National uses Web technology to communicate with vendors that support management and business functions of the bank. Engle explains that vendors maintain databases and upgrade software. If third-party vendors were not present, the bank would spend inordinate amounts of time and money to develop software and conduct other computer-based activities.

Valley National uses the Web to communicate with its vendors. In addition, vendors assist the bank with "version control" - ensuring that the bank has the most appropriate software. Valley National also uses Web technology to order and exchange appraisal orders, flood certifications and other items necessary to originate a mortgage.

Engle's overall philosophy is this: Concentrate on mortgage banking while using Web technology as a tool. "Some shops spend time and effort on programming and system support. I keep my eye on the business of mortgage banking and stay away from developing programs and systems," says Engle. "If I can click into a home page of one of my vendors and download the most up-to-date software, prequalification tools or other programs, I save time and money." Engle counts low cost as one of the big advantages of using Web technology. "The infrastructure is there, all you have to do is get on. There are no toll booths," he says.

Using Web technology has its downside though. Consumer concerns about security rank high, he says. "The perception of Mr. and Mrs. Public is that the Internet is not secure. There's still a lot of fear that someone will have unlimited access to personal financial information. The jury is still out whether you can buy a house with the click of a mouse."

Another concern is capacity constraints. "Like any highway that gets too full, there's a concern that there's only so much you can put onto the Web. No one has adequately answered what happens when gridlock occurs," he says.

Ulster Savings

Similar to Valley National, the staff at Ulster Savings, located in upstate New York, is excited about the potential of Web technology. "The Web levels the playing field with the big guys," says Marge Rovereto, a vice president at the $300 million regional institution. "It levels the playing field because it's affordable and we don't have to make a lot of technology purchases.

"One of the difficulties of not using Web technology is that the user has to be proficient with computers, and that's a long process," she says. "The Web is user-friendly. It doesn't matter if you have two people or 10 people, they can use the technology."

Currently, Ulster, with its $250 million in annual originations and $2 billion servicing portfolio, performs a fair amount of business using VAN technology, including GoldWorks. "We use GoldWorks for delivery, custodial services and automated underwriting with Loan Prospector," Rovereto says. "We also order [through GoldWorks] many services such as appraisals, credit reports, title insurance and flood certification."

Ulster taps the Internet to help generate new business. A number of hits on its home page convert to actual loan business even though consumers view the Web primarily as a source of information. "We have made the decision to remain face-to-face; people are still more comfortable with that," Rovereto says, referring to the fact that while the Web is used to generate leads, loan applications are still taken in person.

But she believes some retail customers will get comfortable with Web technology. "The initial customer meeting may be over the Internet especially if you need price and immediacy." The Internet is not for those who want personal attention and emotional interaction, she adds.

Crestar Mortgage

Crestar Mortgage Corp., Richmond, Virginia, is an early adopter of technology on all fronts, including automated underwriting and Web technology.

"It's a technology that is coming of age," says William C. Stoll, a senior vice president for loan servicing.

Stoll says if you looked at a graph showing the rate of acceptance of Web technology as a communications medium among businesses and consumers, it would resemble a hockey stick, slowly rising over time, and then soaring. The big advantage is low cost. "Once the price point becomes even more reasonable, I think you'll see use take off. It's an expense that is analogous to running your refrigerator - when people become accustomed to using the Web, either the Internet or a VAN such as GoldWorks, its usage becomes a natural part of doing business," Stoll says.

The big issue for the future of Web technology is traffic. "The problem won't be equipment. It's strictly a capacity issue that needs to be squared away."

Crestar Mortgage uses Web technology to stay connected to its customers. "The key is to have the hyperlink [text], so the customer moves to where they want to go. When they see something they like, they can access the site easily," explains Stoll.

Crestar Mortgage borrowers can access a large amount of information and bank services using their loan number. Both mortgage borrowers and bank retail customers have made extensive use of PC banking services.

Crestar Mortgage uses GoldWorks to obtain its quarterly performance under the servicer Performance Profiles, to stay in touch with its Freddie Mac representatives via e-mail and to download announcements. "We'll expand our horizons as functionality is added," he says.

Compelling reasons for expanded use

Freddie Mac is positioned to expand its use of Web technology - in general - and GoldWorks in particular, during the next few years. There are compelling reasons to support such a migration to Web-technology. Among them: Web technology is comparatively inexpensive; use of the technology is becoming widespread; the technology is flexible and based on industry standards; and GoldWorks offers a network for commerce that is secure and managed.

Many different companies in many different industries are investing with the intent of adding tools for electronic commerce as reliance grows on value-added networks. Computer industry surveys, such as the July 1996 survey by Network World's Professional Development Group (Mass High Tech, September 1996), suggest that a quarter of the information technology budgets of major companies has been allotted to building intranets and VANs. As migration to this technology increases, commerce will grow. As the use of intranet technology expands business development, the mortgage industry will be compelled to adopt the technology if for no other reason than that's where the opportunity will be.

There's a growing community of businesses, trading partners and consumers who already expect to get information, and eventually conduct business, via a network. Conversely, many companies like using more private intranet-type technology for its ability to keep them directly in touch with their customers, employees and trading partners without the dependence on distribution channels, the media or mass advertising.

From a technical standpoint, the underlying electronic communications language, Transmission Control Protocol/Internet Protocol (TCP/IP), offers business users of value-added networks an advantage.

The advantage lies in the emergence of value-added networks as significant mediums for transacting commerce, which has prompted enormous development and investment resources to be applied to bolstering the basic infrastructure of these networks. Mortgage lenders and servicers can take advantage of that investment without actually funneling huge resources into network infrastructure development. Rather, they can apply technical and business resources to capitalizing on customer opportunities. Further, because these networks are based on industry standards, standardization can assuage lender fears over dependency on a particular system or provider. More than 60 percent of the nation's largest companies are using or considering using an intranet, according to Forrester Research (San Francisco Business Times, 12/20/96).

Message control

Web-based business activity has its skeptics. There are three main concerns: capacity, content control and security.

Consumers can say what they want, when they want and how they want about a particular company or service in such a communications environment. Such technology enables individuals to quickly and easily spread their views with little if any ability on the part of companies to control that message. Network proponents, however, respond that there is a counterbalance. Using a public or private network and Web technology, companies can target messages to their specific audiences.


Other firms, such as those profiled for this article, worry about network capacity in an era of increasing network usage and dependency. This is a healthy concern, but the irony surrounding the issue of network capacity is that some of the same technology components that helped hasten the emergence of what we now label a networked economy stand to negate any capacity issues. Global improvements in telecommunications management and transport technology;, continued investment in private and public network backbone elements; and increased PC power and new network-based programming languages all promise to help assuage business and consumer worries about capacity.


Security is another primary concern - and it is a critical consideration for all businesses. Part of the solution in addressing security concerns lies with selecting the proper network (private or public) over which to deliver an electronic service. Electronic transactions that involve the exchange of confidential information, funds transfer or that require consistently high levels of service availability are best suited for a private VAN.

For example, transactions conducted over GoldWorks carry a higher level of security and reliability than what is available for the most part over a public network such as the Internet. In addition, GoldWorks users can depend on a managed network, supported by the IBM Global Network, a company whose core business is maintaining a network for business. Conversely, the Internet is a powerful network over which to distribute access to business applications, although with less reliability than with a VAN.

Digital signature, also known as "electronic signature," adds another level of security. It provides an electronic method for verifying the source of a document and ensuring its integrity. Digital signatures are intended to legally bind an individual to a written agreement. Part and parcel with digital signature is encryption, a technique for maintaining the privacy of data by scrambling the information into a code.

GoldWorks customers electing to use digital signatures are issued digital certificates to identify themselves to their trading partners. These certificates make it possible to automate tasks that require paper exchanges both within and between companies. Encryption ensures that the data involved in the automated exchange remain private. GoldWorks customers can use this service for such documents as mortgage applications, appraisal reports and employment and salary verification.

A user's signature is embedded in electronic mail and forms packages so that the user has an electronic form to electronically sign a document with a public and private key. Once the document is mailed, the recipient can prove who sent the document. Digital Signature enables users to encase their name in whatever transaction, application, form or other program.

There are other verification and authentication levels broadly available in the marketplace. An electronic card similar to an automated teller machine bank card coupled with a password offers. users additional security. Some companies are testing a biometric thumb reader, enabling large electronic financial transactions because there are several levels of security and authentication. It's a new way of doing business, and it will take some time for people to get used to it.

Comparative advantage

Competition is one of the principal reasons for businesses to migrate their activities to Web-based technology. Companies that exploit all the potential that Web technology offers will have a comparative advantage relative to companies that stand still, or that implement Web-based applications poorly, or worse yet, enter too late in the game.

From a human resources perspective, Web applications hold appeal for employees. An intranet can bring distant employees, and even correspondents, closer to the home office, creating a stronger cultural bond.

For these reasons, Freddie Mac intends to further build GoldWorks as an attractive network choice for all mortgage industry participants. Freddie Mac will add applications so that the industry can migrate to Web-based technology at their pace: Businesses can make the switch when they are ready. In the meantime, Freddie Mac is moving ahead with applications that are optional for use by servicers.

Workout Manager

In July, Freddie Mac began offering a default management application to enable servicers to analyze their portfolio of pending and completed workouts. The application is an analytical tool that can help lenders save money on the cost of performing a loan workout. For homeowners, the analytics performed with Workout Manager could mean the difference between keeping their house or losing it to foreclosure.

Investor accounting

Beginning in January, Freddie Mac will launch a pilot of the new investor accounting application on GoldWorks. The real bang of this new application on GoldWorks comes in the ability to provide "special request reports." The new special request function will greatly benefit customers because they can obtain specific and detailed data about mortgages serviced for Freddie Mac that have been only manually accessible. Using the GoldWorks application will provide a new tool for proactive management of customers' performing loan portfolios.

Eventually, Workout Manager and investor accounting on GoldWorks will be viewed as decision-support systems and provide for analytics to manage servicers' portfolios. Digital signature and encryption will become essential business tools, much like a messenger service to deliver documents is today. The availability of software applications that provide analytics will grow in importance as usage increase.

So the next time you see your offspring cruising along the information highway, remember that these are the people - in a few short years - who could apply and have closed a mortgage loan using Web-based technology.


Internet. The name of the whole infrastructure of linked computer servers and systems throughout the world for the free-flowing exchange of information without barriers, or fire walls. The Internet began as something call "Milnet," the precursor to the Internet. Milnet originally was intended for military communication, particularly in the event of conflict. The intent was to build a widely distributed system to enable communication so that a failure in any one location would not lead to a complete communication collapse. Today, this is what is called a robust system.

Intranet. A similar set of network information that is available, but only available within a subsystem or subset of the entire Internet community. Intranet has barriers, or fire walls, to reduce security issues as well as route filtering, which limits who you can communicate with at the user's choosing. Intranet is sometimes called a network of a community of common interests.

World Wide Web. The World Wide Web has become the name for exchanging a particular kind of information which is text and graphics over the Internet using a graphical interface using a browser. WWW data typically uses HTML, or hyper-text markup language, that is interpreted by a PC's Web browser and gives you the GUI (graphical user interface) experience. The World Wide Web is the vehicle on the information highway.

Browser. A browser is the software that allows you to interpret and display the graphics and text from the World Wide Web on your PC.

GUI. Graphical user interface. A browser operates in a GUI environment.

Paul T. Peterson is senior vice president, Freddie Mac's servicer division, based in McLean, Virginia.
COPYRIGHT 1997 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997 Gale, Cengage Learning. All rights reserved.

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Title Annotation:prospects for the mortgage industry
Author:Peterson, Paul T.
Publication:Mortgage Banking
Date:Nov 1, 1997
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