Realty brokers are increasingly edging their in way into the mortgage business, both to support home sales and to develop new sources of profits.
Richard L. Schlott, who has been at the forefront of the trend, explains it in the following interview. The story on the facing page, meanwhile, spotlights lights one of the latest efforts by the efforts by the realty community to become more active in mortgages.
Mr. Schlott is president of Coldwell Banker Schlott Realtors, one of the largest brokerages in the New York metropolitan area. Based in Short Hills, N.J, the company handled some $4.7 billion of home salts last year.
The company, which became part of Coldwell Banker two years ago, made waves in the 1980s by helping to pioneer, computerized loan origination systems, or CLOs. With these systems, realty brokers link homebuyers to lenders via terminals right in the realty office - usually for fee. Mr. Schlott's firm is still a fan of CLOs.
Q.: What's drawing your industry to the mortgage business?
SCHLOTT: The real estate community is looking at the mortgage business and saying, "Certainly I have access to the client, and I'm concerned about getting the client a mortgage. And I'm also concerned about the profitability of my company."
The margins in the real estate business are low, so you ask, "What are the other things, I can do?" You start looking at the services that you were willing to accept from outside sources and say, "If I put that into my company, I could get profitability out of it."
Q.: Does Providing mortgage services help your home sales in any measurable way?
SCHLOTT: We found that when we put the CLO system in, our fall-through rate - the portion of sales contracts that fall through dropped by 50%.
And the reason is that the buyer is able to sit down, on the spot, with what we call a financial services representative. The FSR is a person that answers your questions, tells you the different types of mortgages that are available, and tells you what you can do. You start to get comfortable that you're in control of this.
Q.: So, basically, it helps head off any sense of "buyer's remorse" that might set in after the sales contract is signed?
SCHLOTT: Right, and there's more of that in this business than any other. You go home and say, "Oh, my God. We just signed that piece of paper and it's $250,000."
Now, the informed buyer doesn't leave the office and fall apart at the advice he gets somewhere else. He's gotten some vice from another party who's shown it to him on a computer - what the might are going to be, I how they'll change, etc. He becomes, more comfortable and less likely to drop out of the deal.
Q.: A lot of mortgage lenders say it's inappropriate for real estate brokers to get into the mortgage business. What do you make of that argument?
SCHLOTT: The mortgage bankers are saying, "Let's keep things as they are. We don't want any change. The real estate brokers are stepping into our business and, by the way, when they do that they lose their objectivity. I'm objective."
Q.: And what is the brokers' response?
SCHLOTT: The Realtor says, "Wait a minute, don't you understand the service this provides my client? Don't you understand that when my client buys a house and/or my seller sells a house, they want to know that the transaction is good?"
Q.: Let's shift gears a bit. In the face of the refinancing boom, have mortgage lenders maintained the level of service they provide to realty firms?
SCHLOTT: I think that overall the lenders have handled the refinancing boom quite well. That doesn't mean there haven't been times when service has fallen, but they've handled this admirably well in comparison to other times when they were swamped. Q.: Has the emergence of giant, nationwide lenders changed the service levels at all?
SCHLOTT: I think the mortgage industry has become more attuned to service. The giant lenders have raised the competition level so much that price isn't a question anymore. Everybody s comperatitive on price, so they have to compete on service. That's happening much faster than I had expected.
Q.: Have turnaround times on loan applications come down much?
SCHLOTT: Absolutely. At one point it was 60 days and now its closer to the 30. In fact, some of the real strong loans - the nobrainers, as they used to call them - go through even more quickly.
Q.: A few years ago, before it became mired in credit-quality problems, Citicorp was touting a 15-minute mortgage. Is that kind of thing appealing to you?
SCHLOTT: Citicorp had really envisioned the future. We all weren't ready for it, and they had their own problems, but the principle of that was meaningful. I think ultimately that's the way it's going to happen.