Home Equity: Finance Giant Works the Old-Fashioned Way

When Harold Marshall joined Associates First Capital Corp. in 1961, he started at the very lowest rung of consumer finance. "Back then they called it a trainee," he says, "but that was just a fancy name for car repossessor."

Since then, Mr. Marshall, 61, has gone on to become president and chief operating officer. Associates, meanwhile, has emerged as the second-largest consumer finance company in the United States-after GE Capital-and by far the largest home equity lender. The company's holdings of home equity loans have grown by nearly 100% since 1991, to $16.7 billion.

Mr. Marshall expects no slowdown. In fact, he says, Associates will double both originations and earnings once again over the next five years, even as the hot home-equity market draws droves of new competitors.

How? By providing relentlessly hands-on customer service. With more than 2,000 branches worldwide, Associates provides a level of old-fashioned hand-holding that its customers seem to need and appreciate, observers say.

Most offices open at 7 a.m. and they don't close on weekends. In addition, Associates' loan officers often trek to customers' homes.

It's "a 1950s-style throwback finance company," says Michael Durante, an analyst with Prudential Securities. Wholeheartedly in favor of the strategy, Mr. Durante says Associates' planned doubling of volume is "very do-able."

Mr. Marshall, for his part, says the plan now is more of the same.

"We are going to have to get up earlier and work harder" than the competition, he said.

The effort has certainly paid off so far. Associates has been producing 20% more than the volume of home equity loans of its next nearest rival, Money Store, according to National Mortgage News.

Unlike most other consumer finance companies, Associates holds the majority of its loans in portfolio. Total loans, held and securitized, swelled 22% in the last twelve months alone, to $50.3 billion. And earnings increased 25% in the same time frame, to $237.8 million for the quarter that ended March 31.

Associates' approach is the right way to do the consumer finance business, said Michael J. Mayer, executive vice president with Beneficial Corp., Wilmington. Beneficial also has a branch-based strategy that stresses customer contact, not price, to boost originations. "This business is centered around taking care of the customer," Mr. Mayer said.

Though Associates' service strategy may sound homey, the corporate culture is anything but. The branch offices are known as tough, no-nonsense selling machines that are capable of churning out loans at a rapid clip day after day.

Indeed, the "sell, sell, sell" atmosphere has generated some heat for the company. Most recently, Associates was scrutinized by a prominent consumer advocate for paying brokers heavy fees to entice borrowers to take higher-interest-rate loans.

With the legality of that practice up for debate in the mortgage industry, Associates opted to settle a pending suit out-of-court, citing the cost of litigation. "I can promise you we thought we were complying with the law," Mr. Marshall said.

Meanwhile, Associates is assiduously avoiding the industry's consolidation frenzy. Though it has long positioned itself as an acquirer of small companies, it has not stepped up to the plate in recent months.

Prices are just too high, Mr. Marshall said.

Instead, the company is going to focus aggressively on the markets that it is already in, and dabble in direct marketing, he said. Whatever the competition dishes out, Mr. Marshall is sure he can handle it.

"None of our competitors are causing us undue concern," he explained. "I could have taped a meeting about competition 20 years ago, and it would have sounded the same."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER