CarsDirect.com Inc. is taking a hybrid approach in its bid for a piece of the mortgage market - it is acting as a broker on some loans and as a lead-generation service on others.
The Los Angeles company, which made a profitable business out of helping people buy and sell cars and get auto loans, opened a subsidiary, LoanStore.com, a few months ago to handle mortgage and home equity loans.
Bob Brisco, the chief executive of both companies, said its split business model (brokering loans and generating leads) lets LoanStore offer consumers more choice.
"Some consumers prefer a more do-it-yourself approach, while others prefer a personal-shopper approach."
The unit is limiting its brokering to nine states, including California, where he said the activity is "more lucrative," because of relatively high home prices. It generates leads in states where it does not broker.
Brokering is more profitable on a per-loan basis than lead generation, but it has higher costs, Mr. Brisco said.
He could not say which lenders LoanStore is brokering with and selling leads to, but he said the list includes many of the top 10 lenders.
CarsDirect has relationships with major auto lenders, including Wells Fargo & Co., J.P. Morgan Chase & Co., and Citigroup Inc. Its Web site gets about 7 million visitors a month.
"There are strong links between our company and our bankers," Mr. Brisco said.
He would also not disclose LoanStore's origination goals, but he said the unit is already in the black.
It has about a dozen dedicated employees and gets some help from CarsDirect support staff with infrastructure maintenance and other tasks. The parent and subsidiary share the same headquarters building.
CarsDirect was attracted to the mortgage market by its sheer size, Mr. Brisco said. "While the overall market may have contracted a little bit versus the historical highs of last year, we have been growing very quickly and have already reached profitability in a few months' time."
His company is like a "personal shopper or concierge service" for automobiles, he said. Its 100 sales specialists help consumers find a vehicle and get a loan.
Mortgages seemed like a natural progression, Mr. Brisco said.
"We think we're particularly skilled at helping consumers with big-ticket, complicated transactions. We think our infrastructure is perfectly matched for our expansion" into home loans.
For example, he said, much of the same personal information provided in an auto loan application is required for a mortgage.
There are also synergies between buying a car and home equity lending, he said.
"We're finding it increasingly popular and sensible for people to use their home equity to finance a car loan." A cash-out refinancing or a home equity line "can carry a lower interest rate" than a car loan and is tax-deductible.
Michael McMahon, an analyst with Sandler O'Neill & Partners LP in San Francisco, said LoanStore has a better chance of succeeding as a mortgage brokerage than it would as a mortgage bank, which is expensive to operate.
"They need underwriters, closers, quality control folks, while brokers generally can operate with less overhead," Mr. McMahon said. "Brokers are smaller, more nimble."
After hearing a description of LoanStore's structure, he said, "If this company is getting into brokering, and it already has the infrastructure set up to broker other types of loans, I suspect they'll have some success."
