Adjustable-rate mortgages, mortgage brokers and a host of other innovations that spread through the mortgage industry all caught on first in California. So perhaps it's not surprising that a new Web-based California company, IMX Exchange, has traded $1.5 billion in loans via the Internet in the Golden State.

The next challenge facing IMX's new chief executive, Richard Wilkes, is to bring this Web-based phenomenon to other states and eventually to the nation as a whole. Wilkes said the plan is for to expand into such populous states as Texas, Florida, New York and Illinois by the end of next year.

"It will be exciting to watch it grow under his leadership," said Bill Lacy, chairman of Mortgage Guaranty Insurance Corp.

Wilkes brings many years of senior executive experience and a record as a clean-up hitter in the industry. He was a key mortgage-finance player on a team that bought, operated or very profitably sold more than $50 billion in mortgage assets for MacAndrews & Forbes Inc., a holding company controlled by financier Ronald Perelman, according to industry sources. Before that, among other accomplishments, he served for 11 years as chief executive of North American Mortgage Co., the largest mortgage lender in Texas.

Wilkes said heading up IMX Exchange affords him "the opportunity to be part of a sea change in the way business is done." He noted that in California, IMX made it easier, faster and less expensive to bring brokers together with large groups of lenders, offering myriad prices and a multitude of products. This line-up of lenders, products and prices is much greater than the brokers could put together on their own, he said. In California and Utah, the system has 700 broker shops representing 4,000 individual loan officers.

From the wholesaler lenders' point of view, having many brokers on the system means more bidders and potentially better prices. Further, wholesalers on the IMX Exchange can quickly vary their prices and menus of loans to reflect market movements.

San Ramon, Calif.-based IMX has signed up 65 wholesale lenders across the spectrum, from the major lenders to regional players. Among the large ones, for example, is First Nationwide Mortgage Corp., while one of the most recent additions is Bank United of Houston.

"Lenders who choose not become active on the IMX Exchange will discover that there are a number of loans that they will never see and have opportunity to procure," said Alan Speck, a first vice president at Nationwide Mortgage Corp.

Besides wholesalers, Wilkes said that major conduits have already begun to work with the IMX Exchange in order to bid directly on loans at the point of sale and obtain precisely the loan mix they desire. GE Capital Mortgage Services, a major conduit, is using the system in conjunction with a third-party seller-servicer that closes and funds the loans on GE's behalf, delivering a steady flow running as much as $40 million to $50 million in closed loans a month.

IMX, is currently working with Donaldson Lufkin & Jenrette and with the conduit Aurora Loan Services Inc., a Colorado-based affiliate of Lehman Brothers, to fit the IMX Exchange into their strategies for procuring mortgages.

The Bidding Process

Wilkes said IMX works closely with each loan buyer to ensure the necessary services and support are available to fit the IMX Exchange in their business processes.

For example, in addition to outsourcing the capability for closing the loan, IMX offers trading services that give the buyers the option to download their pricing guidelines and loan-selection criteria to IMX's own traders, who then can bid on the buyers' behalf.

The IMX software is distributed free to brokers, but they must pass the IMX review process, which is reputed to be tough. "IMX does the due diligence for the lender," Wilkes noted.

In this Web-based bidding process, the wholesalers get direct access to the loans posted by approved originators. Then, using an anonymous bid-ask system, lenders bid on the loans at the point of sale. Once a broker accepts a bid, the identities of the parties are revealed. Once the loan has been closed, the wholesaler has to pay "a success fee" to IMX.

However, if an originator does not want to see loans from a particular originator, then that originator can be screened out. The same thing can be done if a broker does not want to sell to a particular wholesaler.

The new IMX CEO said this process gives the wholesaler the ability to enter or exit any region of the country in a matter of seconds without any increase in overhead.

(For instance, he said, a lender might have left the Oil Patch states when that region had economic trouble in the late 1980s but then jumped back in when that area started booming again in the 1990s.)

Another advantage to IMX is that business can be transacted on its Web site nearly any time on any day of the week. Plus, "pull-through" consistently runs in the 80% range, which is considered high in the industry, IMX officials said.

This pull-through rate means that 80% of the loan applications where a borrower locks in a mortgage rate are pulled through the pipeline to become a mortgage. A high pull-through rate makes it easier for a wholesaler to manage the interest-rate risk from the pipeline.

IMX monitors trading activity to ensure lock-in commitments are met. Double applications and double locks are prevented. The IMX system has import capabilities to such popular originator software as Contour, Calyx's POINT system, and Genesis 2000.

"Since many of our originators already provide Internet-direct applications for their borrowers," Wilkes said, "as we link up with direct interfaces to those Web applications, pricing will become instantaneous at the point of sale."

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