Home loan brokers are forming lending ventures with real estate agencies and homebuilders at an unprecedented rate.
The deals allow the agencies and builders to profit handsomely from loan referrals without any special knowledge of lending. For the brokers, the ventures are a way to prop up anemic loan volume.
The ventures are being facilitated by technology, specifically computerized loan origination networks, or CLOs, that until recently have been having a hard time getting off the ground. And it has all been made possible by a recently-drafted rule under the Real Estate Settlement Practices Act.
At GHR Systems Inc., Wayne, Pa., operator of one of the nation's premier CLOs, half those coming in for training on their CLO system were sent by companies that operate as controlled business arrangements, said Matthew A. Broderick, executive vice president. The company has trained about 1,000 CLO operators this year.
CLOs have "kind of married the nouveau technology with the new way of forming partnerships," Mr. Broderick said.
Controlled business arrangements -- CBAs -- became popular less than two years ago when the Department of Housing and Urban Development installed a rule that allowed their owners to share their profits. With the mortgage refinancing boom under way, such arrangements were on the back burner for brokers.
Real estate agents and builders decided the ventures were the best means of getting into the lending business. But they had trouble finding partners.
Not anymore. The business-starved brokers are now banking on CBAs to produce much-needed loan volume.
"I can tell you from talking to our client base around the country that [CBAs] are rapidly expanding," said Scott M. Cooley, president and chief executive, Contour Software Inc., a Campbell, Calif., provider of lending software.
Many companies are trying to take advantage of the CBA craze by helping real estate companies and homebuilders set up the legal holding companies.
Norwest Mortgage Co., Des Moines, Builders Funding Corp., Coral Gables, Fla.; and PHH Home Equity Services, Overland Park, Kan., are among the most active.
Mortgage Training Inc., St. Louis, has become the sole marketer of GHR System's CLO, and plans to focus on selling the system to real estate brokerage firms.
Anchor Financial Group Inc. is another company trying to midwife CBAs. Andrew J. Courts Jr., the Raleigh outfit's president, said the real estate company need not be very large in order for the CBA to be worthwhile. He said it must have the ability to originate only 60 loans a year.
But some lenders are not particularly pleased about CBAs. Mr. Cooley, of Contour Software, explained that lenders see CBAs as a potential noose around their necks. He said CBAs were cutting off their traditional means of originating loans: approaching builders and real estate brokers.
Many lenders are reluctant to set up CBAs, said Builders Funding's Mr. Meyer. "They could end up cannibalizing their own business."
The CLO Audience
Controlled business arrangements between real estate agencies and mortgage brokers are taking to the computerized originations systems.
* The cost of entry is lower
* The CLO is a "cleaner" way of paying out origination profits
* Less mortgage experience is required