Freddie Mac Inks Software Deal

Freddie Mac has sold the rights to its online mortgage processing and closing tools to Montreal-based BCE Emergis for approximately $18 million. Under the two-year deal, BCE Emergis will manage the development, implementation and operation of the tools, while Freddie Mac will market them on loanprospector.com, home of its Loan Prospector service, which boasts more than 14,000 lender and mortgage broker users.

The tools make it easier for mortgage lenders and brokers to obtain third-party services needed to process, close and fund mortgage loans through the Internet. In addition, they provide the capability to create, execute and store mortgage documents in a secure electronic environment.

The resulting product suite is expected to streamline loan origination, from pre-approval through funding, closing the loop on electronic mortgages. "When you combine it with our ability to make good decisions using technology and then you streamline the process and the workflow, you've covered a great deal," said Trisha McClung, vice president of Loan Prospector at Freddie Mac.

The deal is all about speeding up adoption. "Having the tools come from a company that isn't tied specifically to mortgages, the technology has the greatest opportunity to get leveraged and used in the industry," said McClung.

Freddie Mac has been working with BCE on the project for 18 months. The software tools, which include vendor services, electronic closing and document access, are about 80 percent complete. Vendor services, which allows lenders and third-party services vendors to communicate and exchange documents electronically, is already available on a limited basis on Freddie Mac's Loan Prospector Web site and will be broadly available by year-end.

Electronic closing, which allows the use of electronic signature and electronic documents in the closing process, is expected to be available early next year. Electronic closing allows lenders to monitor each phase of the process, eliminates courier fees and improves efficiency. "Much of the documentation is done more readily," said McClung. "The same data is used and built on for all of the documents, so you're not creating each document from scratch. There are a lot of synergies in terms of how we leverage the data to improve data integrity and quality, as well as create the needed documents with a lot less effort and work."

By being able to quickly obtain status information, lenders can constantly keep consumers informed and make the process less mysterious. "One of the immediate values to the consumer is that they would have access over the Internet to their documents before they go to the closing table," said McClung. Help features will aid consumers in understanding legal language contained in those documents.

Although the physical closing process will remain largely unchanged for now, closings will move to the Internet as others come onboard. "Over time, as local jurisdictions up their technology pieces, that actual closing could be performed in a virtual closing room," McClung said.

Based on its research, BCE Emergis expects one-third of the market to move to electronic closings by 2005, likely saving lenders about $300 per mortgage.

"Today, this is a very paper-intensive industry," said Gunnar Bergstrom, senior VP of BCE Emergis U.S.A. "There are almost 100 documents involved in the ordering, management and archiving of a mortgage, and we're hoping to drive that down to zero."

While electronic mortgages have piqued the interest of lenders, the hurdles ahead are in adoption rates. "All of the ones we have spoken to in the past two years have been highly interested in how they can use this technology to drive real transactions, not just pilots," Bergstrom said. "We're going to have to focus our efforts on how we can get the industry as a whole to adopt this technology."