Now that bank customers can move their money, pay their bills and get approved for a credit card on-line, they’ll soon be able to have mortgages instantly approved over the Internet, right? Probably not.

Right now, the only bank that has the technology to originate loans other than credit cards on-line, in real time, without having to call or write the customer back, is Bank of Montreal, according to Laura Starita, a specialist in Internet banking at the GartnerGroup.

She explained that the Canadian giant has made a massive investment in time and money in a behemoth data warehousing system with a decision support tool. It can take data on a customer from several different places in the bank, analyze it and decide how much risk the bank wants to expose itself to when the customer, or potential customer, asks for the loan.

For example, a customer might ask for a $100,000 loan. If the bank has already issued a credit card and a small business loan to the customer, it might only have the appetite for $80,000 of exposure. The bank could send back the request, saying it only wants to lend $80,000, or it could approve the entire loan, she said.

In a report issued December, the GartnerGroup noted that the Bank of Montreal can approve loans for existing customers as well as new customers online. Starita said, however, that approving mortgage loans in real time is a ways off for several reasons. One inhibitor, she said, is that legally a mortgage loan needs a hard signature. Another barrier to widespread use is that most banks do not have data warehousing technology because it is expensive and difficult to set up. But the big stumbling block, Starita noted, is the loss of the personal touch.

"Culturally, they’re not ready to take on the risk of automating the process. As soon as you automate the process, you give the customer the ability to price shop, which drives them into a model of making decisions not on the basis of a relationship with you, but who is providing the best deal. (Banks) want as much as possible to facilitate the early stages of the process, perhaps the prospecting part of it, or the early stages of the approval portion. But in terms of closing or the end result, they want to make that a face-to-face communication."

She said, however, that despite all of these reasons, she expects the leaders in on-line transactional banking, such as BankAmerica, which has a data warehousing system, or Fleet Financial, First Union and Wells Fargo, to improve their automated loan approval ability greatly over the next 12 to 18 months. At that point, the mortgage loan could all be done on-line, save getting the signature.

Theodore Iacobuzio, senior analyst at the Tower Group, disagreed that mortgages will be completed in real time, on-line, except for the signature. He said that mortgages are compliance-heavy and inherently need paper–reams of it.

"CRA requirements can’t be done on-line. Insurance requirements–you have to have a house inspected–it may never be done on-line (in real time). Paper is not going to go away," he said.

Starita cautioned that although banks could soon have the ability to automate loans, it doesn’t mean people will be extinct. "BankAmerica might start the process electronically but hit a glitch because of something odd about a credit report, so then they might have to get a loan officer involved. Just because they can do it doesn’t neccessarily mean they do."