July 24, 2000

B2B E-COMMERCE COULD GIVE RISE TO CHANGES IN THE MORTGAGE MARKET

SAN FRANCISCO, CA -- Can business-to-business (B2B) e-commerce developments make the residential mortgage market more efficient and ultimately pass the cost savings to consumers in the form of lower mortgage rates and fees? In a just-released Economic Letter, San Francisco Federal Reserve Bank Research Officer Joe Mattey describes the current structure of the residential mortgage markets and reviews recent B2B e-commerce developments that could change the future role of current key players.

In his Letter Mattey notes that large numbers of businesses interact in mortgage brokering and loan processing functions. Efforts to bring these groups of suppliers into mortgage Electronic Partner Networks (EPNs) are beginning to gel, owing to recent development of XML mortgage standards and other EPN building blocks. The author points out that "one possibility is that EPNs could reduce brokers' costs of interacting with numerous loan underwriters and funders." While Mattey writes that "such a cost reduction would favor the brokering model of loan origination over retail and correspondent channels," he also observes that "the emerging B2B mortgage technologies also potentially make brokering technology so commonplace that today's large number of brokers could be replaced by non-traditional competitors." Another possibility is that improved B2B efficiencies between loan processors and third-party providers of services such as credit reports and title, hazard, and mortgage insurance could allow early-adopters to gain market share by passing on technology-enabled cost savings to consumers.

The full text of this Economic Letter, dated July 28, 2000, is available on the Internet at: http://www.frbsf.org/econrsrch/wklyltr/2000/el2000-23.html