According to IDC, government-sponsored entities such as Fannie Mae, through their dominance of the market, could limit the amount of opportunity for secondary mortgage e-marketplaces.

"The secondary mortgage market is labour-intensive and paperbound, which creates enormous potential for a Web-based e-marketplace to provide value through automation and integration," says Aaron McPherson, research manager for IDC's eLending program. "However, before the market can pick up momentum, the independent e-marketplaces will have to put forth aggressive marketing efforts, partner with key service providers, and present a complete and compelling value proposition to customers. Otherwise, they are likely to lose business to online eprocurement sites run by the big buyers themselves."

If the independents can't create stronger value propositions, IDC warns, they will be relegated to providing pricing information rather than platforms for actual trading. Because customers are still comfortable with the traditional offline systems, IDC believes the e-marketplaces will be challenged to provide enough value to induce traders to switch.

"Convenience is currently the main benefit, but it's not enough," McPherson says. "e-marketplaces will have to prove they can save costs, increase volumes, and enhance profitability. Doing this requires more value-added services, such as document handling, risk hedging, and settlement."

Unless the independent providers are able to overcome these challenges, IDC forecasts they will have only about 4% of the total secondary market for whole loans by 2004. In the mortgage-backed securities market, where the restraints are not as severe, IDC projects a 55% share.