Cendant's Mortgage Unit Grows Quickly, Quietly

A military pocket patch bearing the nickname "Sleeper" is displayed on Richard A. Smith's office wall-a memento of a visit with the "Bold Tigers" of the Air Force.

The nickname stemmed from his former job at the HFS Inc. unit Days Inns of America.

Today, Mr. Smith is out of the hotel business, but the nickname may be just as apt. As chairman and chief executive officer of the real estate division of Cendant Corp.-a conglomerate created last year when HFS merged with CUC International Inc.-he figures to become a major force in the mortgage business.

Mortgage lenders have been casting a wary eye toward Cendant ever since PHH Mortgage Services was swallowed up by HFS last year, giving the mortgage unit the potential to tap into a vast network of consumers and alliances.

And if past performance is any guide, the mortgage unit figures to fulfill its potential. Mr. Smith is a "superb executive" who has "always met or exceeded our board's expectations or my expectations in terms of delivering," said Cendant Corp. chairman, president, and chief executive officer Henry R. Silverman, who has worked with Mr. Smith since 1984.

The soft-spoken Mr. Smith, 45, was raised in Columbus, Ga., and spent most of his career in Atlanta.

His education might have brought him down a different path. At 19 he became a cadet in the police force in Columbus, and he spent six years on the force, working his way up to a robbery and homicide detective.

In 1979 he became a manager-trainee in the corporate loss prevention program for Days Inns, where he stayed through 1992. During his 13 years he worked his way up to senior vice president of administration and earned a place as a member of the Days Inns operating committee.

In 1992, HFS Inc. acquired Days Inns, and Mr. Smith ultimately became executive vice president of operations for HFS, overseeing franchise services, quality assurance, purchasing, and human resources.

He helped to create HFS' preferred alliances program, in which high- volume purchases from partners are exchanged for discounted services for consumers and franchisees. In 1996 he was appointed president and chief operating officer for the real estate division.

Most of Cendant's growth has come from the same customer returning to buy other services, Mr. Silverman said.

In this environment, the necessary skill set for executives like Mr. Smith is "knowing your business, knowing your customer's business," he said. "I think Richard really understands our culture totally and completely."

The past year has not been easy for Cendant, Mr. Silverman acknowledged. Management has been distracted by the widely reported accounting problems discovered in CUC's books.

But with the company "feeling under pressure, beleaguered," a greater esprit de corps has developed among executives, Mr. Silverman said. "I think that we have become even closer because it has become us against the world."

The real estate division's successes have been a rallying point. Its 65% growth in pretax earnings, to $176 million in the second quarter, has been "a testament to how well our business model works," Mr. Silverman said, adding that the unit still would have produced substantial growth even if the residential market was flat.

The brokerages represent "20-25% of all residential real estate transactions in this country. We've got a long ways to go before we have anywhere near our market penetration, just on what we touch," said Mr. Smith, who noted the mortgage unit's market share is less than 2%.

Cendant Mortgage is "an absolute engine for growth for us," he said. "We haven't even scratched the surface."

Another unit, Cendant Mobility Services performs 100,000 corporation- sponsored moves a year, for almost 52% market share in the relocation business, said Mr. Smith. Its clients include IBM, AT&T, and such government agencies as the Drug Enforcement Agency, the FBI and the Federal Aviation Authority.

Cendant also has a pilot program with the Army in Savannah, Ga. as the Department of Defense reviews how it coordinates over half a million moves each year.

The mortgage operation is based in a Mount Laurel, N.J., facility where 3,400 now work, but which is big enough for about 6,000, Mr. Smith said.

Cendant is an "800"-number originator, enabling it to produce loans at low cost. A call center in Mount Laurel allows Cendant Mortgage to deliver service under the name of corporate clients that include financial institutions Merrill Lynch and Independent Bankers Association of America; affinity organizations including United Services Automobile Association and Amway Corp.; and such corporations as Microsoft, United Parcel Service; and the real estate brokerage companies like Century 21, ERA, and Coldwell Banker.

Unlike traditional lenders, Cendant Mortgage has no marketing costs and does not engage in print or television advertising to attract mortgage customers. These costs are covered through the agreements with real estate brokers.

In hopes of further building it's clout, Cendant, with Apollo Management LP, last year created NRT Inc. The unit buys independent brokers and then converts them into one of the three brands under the Cendant umbrella. Over the last year it has bought 35 major brokers, representing about $900 million in income, Mr. Smith said.

"Most of what I operate today is a franchise-based business," said Mr. Smith. But it is also relationship based, he said.

Cultivating relationships is particularly important in the mortgage business. "The agent and the broker are influencing, they don't control, but they influence these mortgage decisions," he said.

"There currently is not a competitor in the marketplace with our business model," said Mr. Smith. "That doesn't mean that others wouldn't try to copy our model. "Our goal is to provide products and services that are specific to that real estate transaction."

Cendant is developing an electronic platform for real estate transactions that it hopes to introduce in 1999, he said. Residential real estate brokers can be the marketing arm for mortgage products, he said, as well as any number of products and services related to the real estate transaction, and that works to the benefit of the brokers as much as the mortgage company. "Today because of continued pressure on margins for brokers in this business, they are having to seek out ancillary revenue opportunities."

Aside from the Bold Tigers memorabilia, signs of the marketing juggernaut he heads are much in evidence in Mr. Smiths office.

Three mini stake-signs for Century 21, ERA, and Coldwell Banker, perched on Mr. Smith's windowsill, hold his nameplate, signalling the inside track he has with the real estate broker community.

Indeed, with 1,500 brokers on waiting lists to be serviced by Cendant Mortgage, Mr. Smith may have to hop back in a fighter-jet to keep up with business.

A photograph of Mr. Smith shaking hands with retired general Colin Powell, a keynote speaker from one of Cendant's brands' conferences, hangs in Mr. Smith's office. Retired general Norman Schwartzkopf was another such speaker.

While these American military giants might not know Mr. Smith by his call-sign, they do know him as a Top-Gun in real estate.

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