NEWS ANALYSIS: Lenders' Rebuff of Retailer Signals New Selectivity on

Mortgage banks that make loans on behalf of trade and professional groups have turned down the chance to originate loans for Pricecostco Inc., the huge nationwide retail outfit.

With all the new entrants and heated competition for affinity lending contracts, mortgage bankers have had a sign first, consider later policy toward any pending arrangement.

But lenders say the rejection of Pricecostco signifies a new mood in affinity lending whereby mortgage bankers are more selective about the contracts they sign.

"Mortgage bankers are looking closer at their affinity relationships that they are getting involved with," said an affinity lending executive at one of the largest mortgage banks in the Northeast.

Just two weeks ago the affinity lending community went ga-ga over the possibility of originating loans on behalf of Wells Fargo Bank. The San Francisco bank has announced it is closing up much of its home-loan originating machine.

GMAC Mortgage Corp., Elkins Park, Pa., and Lincoln Service Mortgage Co., Owensboro, Ky., have said they were interested in working with Wells.

But that sentiment has changed, especially considering the Pricecostco contract.

Pricecostco approached lenders with a request for proposals around November. The Kirkland, Wash.,-based merchandiser operates more than 240 warehouselike retail stores and has 18 million members across the nation.

Sources within the industry say Countrywide Credit Industries, Pasadena, Calif., and GMAC Mortgage were among the lenders that were being seriously considered for the contract.

What made Pricecostco's prospective contract unique was a stipulation that the lender put up money for marketing and advertising. Usually such costs are split between the lender and affinity group. Lenders say Pricecostco wanted "well over seven figures" dedicated to marketing by the affinity lender.

"That is ridiculous," said the Northeast affinity lending executive.

Pricecostco also wanted to be paid for the right to market loans to its members, lenders say.

Glen C. Dobi, Pricecostco's director of financial services, said Pricecostco was "still evaluating whether this is something that is feasible and of interest to us."

He would not comment on particulars of the request for proposal and the bidding process.

But according to some executives involved in the discussions, the negotiations went back and forth between Pricecostco and lenders for months. Late last month Pricecostco approached a lender - believed to be GMAC - with a final offer. The retailer stuck to the requirement that the lender spend a large sum of money on marketing and advertising.

The lender balked.

The Northeast mortgage banking executive said Pricecostco had not even tested the receptivity of its members to the mortgage program.

"With no testing in place, that is a real gamble," she said.

Often an affinity lender will send out a test direct-mailing to find out how many group members will respond to its queries.

Lenders say Pricecostco was turned down because it demanded too much of its potential partner. Margins are thin enough in mortgage banking today, they said, and the added costs wipe out the arrangement's profitability.

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