Merrill Lynch Credit Corp., which has carved out a niche in the mortgage business for the big securities firm, last week received the Malcolm Baldrige National Quality Award.

The Jacksonville, Fla., Merrill Lynch unit, which specializes in mortgages and other loans to the very wealthy, was honored for the way it involves and trains employees and serves customers. Units of Xerox Corp., 3M, and Solectron Corp. also received the award, which is named for the former commerce secretary.

Before the ceremony, Michael A. Johnston, chairman of the Merrill unit, and Kevin O'Hanlon, its president, sat down with American Banker. They said their task since the unit was formed in 1981 has been to broaden Merrill Lynch's customer base to include younger people who, though wealthy, need credit.

What's your biggest challenge these days?

JOHNSTON: To get our customers to fully understand that Merrill Lynch is just not an investment management company-that it's a financial planning company as well.

At one time you only came to Merrill Lynch because you had investments to make. Now you can come to Merrill Lynch whether you have investments to make or whether you want to buy a house. We've expanded the products and offerings that the boomers needed-and that was credit. So we can compete earlier in the life cycle than we did in the past.

Is your job getting harder with banks buying more securities firms?

O'HANLON: The banks have got a lot of cultures to mesh together. They may technically have the capability to do everything that Merrill Lynch can do, but they've got to figure out how to deliver that. I think we've got a tremendous head start.

If I'm looking for a jumbo mortgage, why should I turn to you instead of a bank?

JOHNSTON: We have a Mortgage 100 program. We lend you 100% of the purchase price of a home if you pledge some of your securities in lieu of a down payment. It leaves your investment program intact, you avoid the capital gains you probably would have to pay by selling those things, and maximize your interest deduction on your mortgage.

That kind of program is not offered by many banks, who, by the way, tend to be slower in understanding client needs.

O'HANLON: I think it all has to do with focus. We're not out competing with every bank for every piece of business on the street for market share. All we want to do is stay focused on the high-end market.

We've designed not only our product but our underwriting capabilities around that type of borrower-an entrepreneurial person who has a very, very complex tax situation and irregular cash flows.

How important is to build a customer base among the next generation?

JOHNSTON: Trillions of dollars are going to pass from the older generation to the next generation. We need to teach the next generation how to handle that transfer of wealth-they need advice and some wisdom, and we believe Merrill Lynch financial consultants are capable of doing that.

Do you need to use that edge before more banks get into that business?

JOHNSTON: I think it's always important that you stay ahead of your competition.

What other special programs do you have?

JOHNSTON: Parent power is where your son or daughter wants to buy a house. They have a decent job, but they don't have a credit history or down payment. We have a program where you as a parent can pledge securities for 20% down and we will give a 100% mortgage to that son or daughter. When they hit 80% (loan-to-value), we'll release the pledge. Yet you don't have to take money and give it to them, you can help them.

O'HANLON: Parents and grandparents typically like to help their children buy their first home, and they've always done that by just writing a check. With people living longer now, they've got a longer retirement period that they need to think about funding. This program gives the ability to help the grandchildren or children and still not impair their lifestyle going forward.

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