Computerized Loan Origination Systems: An Industry Case Study of the Electronic Markets Hypothesis

Abstract

Much has been written in recent years about the changes in corporate strategies and industry structures associated with electronic coordination of market activities. This paper considers the advent of electronic market coordination in the home mortgage industry, focusing on Computerized Lean Origination (CL O) systems. Case studies of five CLOs (First Boston's Shelternet, PRC's LoanExpress, American Financial Network's Rennie Mae, Prudential's CLOS, and Citicorp's Mortgage Power Plus) reveal a range of system functionalities. Predictions from the Electronic Markets Hypothesis (EMH) are tested against the empirical results of the five case studies. As suggested by the EMH, financial intermediaries have been threatened by the in-"troduction of CLOS, and in some cases opposition has been mounted against the systems. On the other hand, despite the availability of the technology and mortgages' seemingly favorable characteristics as an electronically mediated market product, the industry has not been fundamentally changed by the introduction of these systems, despite more than a decade of experience with them. Of the two case studies that could be characterized as electronic markets, neither continues to exist in that form today. And the system with the largest dollar volume of mortgages of the five is best characterized as an electronic hierarchy. These results suggest that either the full results predicted by the EMH require a longer gestation period or that the underlying hypothesis will require augmentation in order to fully explain the results in the home mortgage market.

Theoretical Foundations of Empirical Research on Interorganizational Systems: Assessing Past Contributions and Guiding Future Directions

“…For example, a poorly designed IOS might not support market transactions, whereas an alternatively designed IOS might provide better support. Hess and Kemerer (1994) test the electronic market hypothesis through case studies of five computerized loan origination systems and find no significant industry changes despite continued use of the technology. Prior systems that could be characterized as electronic markets cease to exist, and the most successful system is described as an electronic hierarchy.…”

Un paradigma de la nueva economía : el sector financiero en España

“…Porter y Millar (1985) reconocen, ya a mediados de los ochenta, el importante papel que juegan las tecnologías de la información en el proceso de creación de valor a partir de las aportaciones iniciales de Porter en 1980. Hess y Kemerer (1994 validaron el supuesto de reducción de los costes de transacción en los mercados electrónicos.…”

Electronic marketplaces: A literature review and a call for supply chain management research

“…Both theories are extensively discussed within the field of EMs (see e.g. Bakos and Brynjolfsson, 1993;Hess and Kemerer, 1994;Van Heck and Ribbers, 1997;Bailey and Bakos, 1997;Gregor et al, 1997).…”