RAY O’CONNOR
Applicants confident

For those who need instant gratification, a new Internet mortgage program might be for them. In about two months, two Massachusetts banks will go online with mortgage loan decisioning software providing instant approval to consumers.

The Bank of Western Massachusetts in Springfield and Flagship Bank and Trust Co. in Worcester are both expected to use the program called LendersLogic, according to Ray O’Connor, executive vice president of Vermont-based Chittenden Corp. Mortgage Service Center.

Chittenden Corp., a $6 billion entity, is the bank holding company for both The Bank of Western Massachusetts and Flagship Bank and Trust.

“Chittenden has worked closely with Boston Web Services to ensure that the LendersLogic solution meets both the goal of both our mortgage business and the needs of our customers,” O’Connor said. “With our new approval service, applicants can explore loan programs, see all the closing cost detail and calculate their estimated monthly mortgage payment. Whey they decided to submit their application for instant approval, they are applying with confidence.”

Two-year-old Boston Web Services is the creator of LendersLogic, which returns an underwriting assessment to both the consumer and the loan officer in seconds. It has a verified interface to Freddie Mac’s automated underwriting system.

Boston Web Services was established to provide targeted managed Web services to customers requiring business solutions to complicated Web-based business models.

According to Wayne Howe, president and general manager of Boston Web Services, LendersLogic is more than a credit evaluation because it provides a full underwriting assessment.

The data is checked for accuracy, credit reports and scores are obtained and all the required information is run through the underwriting system providing instant approval. The program also allows a borrower’s information to be imported into loan origination systems.

“It really matches the culture of the Web,” Howe said.

Immediate Answers

LendersLogic was approved by Freddie Mac in April 2004 and a beta version of the program ran through last summer. The product was officially launched in September. Howe said LendersLogic is being sold to banks, credit unions and mortgage companies.

The program is affordable to both large and small institutions, according to Howe. For a basic origination account, there is a $5,000 setup fee and a minimum monthly fee of $250, which includes 10 mortgage applications. There is a $25 fee per application thereafter. For a larger bank with affiliates, such as Chittenden, the cost is higher for a more complex program.

O’Connor said during the refinance boom, borrowers could not get to a loan originator fast enough. The LendersLogic product will provide immediate answers to borrowers, and Chittenden is targeting customers who want instant answers.

The banks, O’Connor said, are also targeting another type of borrower.

“We are targeting customers who are purely shopping Internet sites,” he said. “[The product is] for the customer who is not afraid of using the Internet.”

The product works by asking the borrower to complete seven fields of information. It is then submitted to Freddie Mac’s Loan Prospector. If a borrower does not receive instant approval, he will be contacted by a loan originator within 24 hours.

Chittenden Bank already has added instant online mortgage approval to its Web site as part of its “American Dream Online” program. In one 30-day period, almost 150 customers used the new service and many of the customers received an instant approval.

“Online applications are going to become bigger and bigger,” O’Connor said.

A recent Jupiter Research survey of 500 borrowers who applied for a mortgage online said they were motivated by convenience rather than rates. 61 percent of respondents cited convenience as the No. 1 reason for applying online. Avoiding an “in-person” visit to the lender and “faster approval” were the second and third most popular reasons.

But loan officers won’t be out of a job in the near future, according to O’Connor, who noted that customer service is still Chittenden Corp.’s top priority.

The Bank of Western Massachusetts and Flagship Bank and Trust aren’t the only banks trying to build up their Internet sites. Jim Jones, founder and president of First Wellesley Consulting, said more banks and mortgage companies are finding ways to build more robust Internet channels.

“The growing trend is to speed up the approval process,” Jones said.

Lenders are reporting back a 15 percent application rate through their Web sites, according to Jones. Lenders are starting to view Internet applications as a required element of their business, instead of experimenting with it.

He estimated that between 20 percent and 50 percent of lenders both nationally and in Massachusetts use the Internet in some form for their business. Approximately 25 percent use the Internet for more complex transactions. He said the lending industry is trying to provide conditional commitments to consumers by giving approval contingent on other factors.

The only lenders who are opting out of Internet applications are those in marketplaces where Internet usage by consumers is low.

But just offering an online application isn’t enough, according to Jones.

“The most important element is ease of use in terms of completing an Internet application,” said Jones, adding speed and reliability are also important.

Also central to successful Internet mortgage transactions is the ability to electronically integrate application information with loan origination systems, such as what LendersLogic is doing. Some companies still must retype application information into loan origination systems.

“The data needs to flow from [the Internet application] directly into the loan origination system,” Jones said.

For borrowers, having multiple means of communication – such as telephone and Internet – is still important, Jones said.

“Consumers have specific channel preferences,” he said.

Looking to the future, Jones said final mortgage approvals won’t be provided over the Internet for 100 percent of the loans. He said he expects that in another 10 years, between 65 percent and 80 percent of loans will be approved over the Internet.

O’Connor said he expects to have all five Chittenden-owned banks using the online approval program within a year.

Jennifer Jope may be reached at jjope@thewarrengroup.com