Affinity lending, once a backwater of the mortgage industry, is rapidly coming of age as some of the nation's largest banks jump into the business with the commitment - and the capital - to make it grow.
The newest entrants are Chemical Residential Mortgage Corp., Citicorp Mortgage Inc., and Shawmut Mortgage Co. They each have taken steps to form units that market mortgages to members of trade and professional groups, industry sources said.
The banks' willingness to invest in building a specialty mortgage business even in a weak market indicates that their revived interest in mortgages is more than just a perishable fad.
The trend may also reflect banks' growing comfort with affinity marketing through their successful credit card operations.
A Chemical spokeswoman said the Metropark, N.J.-based lender had already signed on "a couple" of affinity groups to lending contracts and had hired an unspecified number of sales people.
Sources say the three banks are hunting for executives to head the new affinity-lending divisions. At least two of the industry's top affinity lenders have been approached by headhunters in recent weeks, they say.
The Chemical spokeswoman said only that the bank has "not yet chosen someone to head up the unit."
Shawmut began searching for someone to head its new unit about a month ago, said John J. Spear, executive vice president. He expects the unit will be up and running by the end of the first quarter. He said the lender's processing operation suits affinity lending well. But Shawmut still must set up a telemarketing operation, he said.
Shawmut's affinity lending program will start conservatively, restricted to the Northeast, where the bank is strongest. If that's successful, it will expand nationally, he said.
By the end of 1995, Shawmut's affinity lending operation is expected to produce a modest $25 million of loans, he said.
Shawmut decided to get into affinity lending last summer after a hired consultant said the line of business would be expanding greatly over the next few years, Mr. Spear said.
Sources said Stamford, Conn.-based Citicorp Mortgage is eager to get a quick start and is willing to pay handsomely to get the best banker to head the new unit. One source said the bank was offering a yearly salary of $250,000 to $300,000.
Efforts to obtain comments from Citicorp were unavailing.
The developments closely follow the greater push by another major commercial bank's lending subsidiary, Norwest Mortgage Co., to originate more loans for affinity groups.
The new players could mean serious problems for the industry's top affinity lenders. Lenders say big bank moves into affinity lending - already a competitive but relatively small field - could make for heightened bidding wars for contracts.
Affinity lending, a potentially lucrative field, may be responsible for more than $30 billion of loans a year, according to very rough industry estimates.
United Services Automobile Association, the San Antonio financial services provider, is probably the nation's largest affinity lending contract. According to USAA, it was the source of more than $2 billion of loans for PHH US Mortgage Co., Mt. Laurel, N.J., and First Union Mortgage Corp., Charlotte, N.C., in 1993.
But there are few USAAs, lenders said. That is just one of the many pitfalls Chemical, Citicorp, and Shawmut face.
Five lenders now have a strong hold on the affinity lending industry: Prudential Home Mortgage, First Union Mortgage, Lincoln Service Mortgage, PHH, and GMAC Mortgage Corp.
"The market is huge, but the number of new contracts that go out a year is small," only about a dozen a year, a lender said.
Some lenders doubt that large commercial banks can effectively maintain affinity lending relationships. Affinity lending, they said, is intensely driven by relationships and service.
And service is not always best from commercial banks, they said.
"If they go in there acting like a commercial bank, they are going to get burned in the sun," said a top affinity lender.
Industry insiders are most fearful of the potential competion from Citicorp. That is especially true since it seems the bank is willing to spend a lot of capital to be successful in this line of business.
One Midwest lender said Citicorp posed the greatest competitive danger. "My fear is that the Citi machine starts getting rolling and sucking up a lot of business," he said.