Scott A. McAfee, president and chief executive of Spring Mountain Group, has been instrumental in creating one of the nation's most innovative real estate finance companies. The Newport, Calif., company employs what he calls a seamless process: It uses capital for funding, then to gain fee income, and then again for funding. Mr. McAfee thinks all of residential lending is moving toward the seamless system - and beyond. He talked with American Banker about his vision of tomorrow's mortgage banking.

Q.: How does your company work?

McAFEE: On the East Coast, real estate transactions are closed by lawyers. On the West Coast, because of the complexities, that's done by escrow companies. Spring Mountain is the largest.

The escrow company holds money in escrow at Pioneer, the tiny savings and loan we own. That provides low-cost funds at the S&L, which uses the funds for warehouse lines. The warehouse lines are used to fund home loans, which are closed by Spring Mountain.

It is a very seamless business. It is a very well-integrated, and getting better integrated, business. That was the whole idea of this business: to really combine as many product sales as possible into the residential real estate transactions.

Q.: Why adopt a seamless system?

McAFEE: It helps you cross-sell. The best people to sell consumer products to are homeowners. They have enough wealth to make a down payment. They have proved that they can make payments.

They probably have a growing family. They are going to have to go out and buy furniture, whatever. They understand the value of savings so they are good both from the lending side and the savings side.

They are going to have credit cards, a car loan, they will be investing in mutual funds at some point in their lives. They are a group of power users of financial services.

Q.: What's the next step for Spring Mountain?

McAFEE: We are looking to create a tie-in to title insurance.

Q.: Are lenders truly interested in a seamless business and cross- selling?

McAFEE: Over the last couple of years, a lot of big financial companies were so busy doing first mortgages. With the mortgage industry turned on its ear, I think people are going to be highly interested in mining that first mortgage.

Q.: Why do you think this strategy will work?

McAFEE: The more product that you can sell off a single sales commission, the more attractive you are going to be. And this country is going to demand it. Remember, when they go to resell that house that 10% of closing costs above the price of the house is going to have to come from somewhere and we just don't have that much appreciation. It's a lot of money when you think about it. There will be no way for people to buy and sell homes.

Q.: What does this mean for the industry?

McAFEE: I think we are going to see not only a consolidation of mortgage companies, I'd take that one step further: The longer-term trend is going to be an overall consolidation of all the companies involved in the residential real estate transaction, the simultaneous packaging of real estate services.

It is one of those eat-or-be-eaten type of lifestyles. There is no coincidence that people jumped at no-point, no-fee loans. I mean, why should people pay fees more than once?

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