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INTRODUCTION
William Bolt of Cinnaminson, N.J., knows well the anxieties of buying a new house. In three such transactions, he waited An average of six agonizing weeks for loans to be approved. It was with a certain foreboding, therefore, that Mr. Bolt faced buying another new house last August--this time before the lease on a rented house ran out. "By the time we found the home we wanted, we had to settle in two weeks," he recalls. "Everyone said it was impossible." But everyone was wrong. Mr. Bolt's mortgage banker turned to a nationwide, computerized mortgage-search service to process the Bolt loan application. The mortgage was approved just eight working days later (Lipman, 1984).
Although he may not have been aware of it at the time, Mr. Bolt had happened upon an innovation that many in the early to mid-1980s felt was destined to revolutionize the market for home mortgages. Computerized Loan Origination systems, or CLOs, were heralded as mortgage banking's savior by some and as a dire threat by others. For years, mortgage lenders had benefited from computerizing the "back end" of their operations, where records were archived, balances were transferred, and bills were sent out. The "front end," where loans were contracted for by a home buyer and a lending officer, was dominated by face-to-face interaction, piles of paperwork, and, as Mr. Bolt experienced in his three previous outings, a lot of waiting.
CLOs promised to change that. Automation first crept into the front end of the mortgage business through the local lending officer's door. Large lenders offered their agents terminals they could use to tap into centralized databases in order to have the latest information about volatile interest rates and to transmit application information back to the corporate underwriters as an aid in the origination process, the creation and delivery of mortgage loans. These early CLOs generally offered loans from only one lender and left the task of picking that lender and traveling to his or her office to the borrower. The critical change that made CLOs the source of hope and controversy occurred when the systems went out the lender's door and set up shop at the local real estate office.
Suddenly, CLOs were much more interesting. The new systems linked...