Some mortgage companies may be going the way of the credit card by offering pre-approved home equity loans through third party marketers.
Using the latest technology to tap into consumer credit histories and demographics, these marketers are hoping to generate business by churning out reams of potential customers for their clients.
"Equity loans are taking the same road as credit cards," according to Anton Morell, a senior vice president at the Chicago-based Investment Marketing Group.
"Those started off as letters of invitation and quickly moved on to pre-approved forms," he said.
Borrower Lists Generated
IMG caters its services to home equity lenders who want to expand their loan originations but don't want the liabilities incurred by a direct marketing program.
The proposition is simple. The group will generate a list of potential borrowers matching the lenders preferred criteria.
IMG will then mount a direct-mail campaign that guarantees those individuals a home equity loan up to a predetermined amount, ususlly $15,000.
The pre-approved loan is subject to verification of ownership and, unless the lender decides to a 100% loan-to-value ratio, an independent appraisal will be made of the equity in the home.
Obligation on Loan
IMG is responsible for launching and maintaining the marketing campaign while the lender retains control over application processing, appraisals, and final approval.
The catch is, the mortgage company is obligated to make that loan after the application has been processed, possibly forcing the lender into an compromising position.
But company officials say the product is effective and has a fail-safe clause that limits the lender's liability if a problem borrower slips through the cracks.
"The loans are pre-approved up to $15,000, but that doesn't mean we have to lend out the entire amount," said Mr. Morell.
According to Mr. Morell, the mortgager can chaqnge the amount of the loan to as little as $1,000 if it's not satisfied with the credit credentials of the borrower.
Some lenders have been hesitant to go the pre-approved route. According to the group's president, James W. Finkenkeller, some companies were concerned about the legality of approving loans without a formal interview process.
Mr. Finkenkeller, however, says the profiles his company draws up are accurate and the loan-amount limitations effectively insulate the lender from potentially expensive liability.
"There are sources out there that give you the ability to accurately profile individuals," Mr. Finkenkeller said.
He added that two companies had pulled out early on in the program but that any concerns from the past have been ironed out and the company now has two operations in place, with another two coming on line in the near future.