Joint ventures between mortgage bankers and realty firms involving computerized loan-shopping are starting to mushroom. Many people think they will revolutionize mortgage delivery, but the idea's still largely unproven.
It's a homebuying couple's dream come true: Sitting in a local real estate agent's office, having found a home they like, they can shop for a mortgage by comparing rates and terms from a range of lenders, displayed on a computer screen. No more harried days of newspaper comparison-shopping, calling for quotes or trying to reach mortgage brokers on their car phones.
What works for home shoppers here could also be a boon to lenders if they can share in the business generated by computerized originations. That's permissible if there are ownership links between lender and realtor. It's a partnership that's so logical, it's surprising it's not commonplace.
Such ventures have become known as "controlled business arrangements," or CBAs. The phenomenon isn't brand new - related arrangements called computerized loan originations (CLOs) have been around for years - but it's been in the headlines often in the past few months, thanks to a combination of forces.
One of those forces is weak demand, which is spurring lenders to hunt for ways to grab greater market share of houses that are sold - and forcing realtors to seek new sources of income. Another factor is the ever-increasing sophistication and power of personal computer networks, which can deliver reams of data to a desktop PC.
Two huge mortgage players, PNC Mortgage and Countrywide Funding, have made major announcements about controlled arrangements. PNC is partnertrig with Coldwell Banker Corp., and Countrywide has set up a unit, Countrywide Partners, to develop joint ventures. Earlier, Norwest Corp. hired a top mortgage executive to help it form such arrangements. Several mortgage bankers say there's a real buzz in the air about such deals.
Helping build this noise was an amendment a year ago to the Real Estate Settlement and Procedures Act, or RESPA, by the U.S. Department of Housing and Urban Development. It permits sharing of revenues in joint ventures formed by realtors and mortgage bankers, though referral fees are still verboten for firms in which there is no common ownership.
Since mortgage bankers are vying to "lock up" realtors, they're not always eager to air their plans. A spokeswoman for Norwest Mortgage said that due to the, "highly competitive nature" of these arrangements, the company wouldn't discuss what it's doing.
Some mortgage experts down-play the novelty angle. "There's a history of these things," says Smart Feldstein, president of SMR Research in Budd Lake, NJ. "So far, they haven't made a big impact. Sometimes a trend takes a while to develop."
As Feldstein relates it, one form of controlled arrangement dates back to the early 1980s, when First Boston Corp. created a now-defunct realtor-driven CLO, ShelterNet, that allowed realtors to originate mortgage loans. A number of realtors later decided to get into the mortgage banking business, he says; quite of few of those lenders still exist. The National Association of Realtors even had its own mortgage banking venture, Feldstein says.
"I think there will be more of (these arrangements)," he predicts. "But they have not shown they can meaningfully drive market share toward a single lender."
Variety of lenders
The venture between Coldwell Banker and PNC, called The Home Mortgage Network, is slated to open in 340 CB-owned offices beginning in March, then "look for opportunities" to expand to CB franchisees, which number over 2,000 in North America, HMN officials say. PNC products will be offered, of course, but the executives insist that customers can shop from a variety of local, regional and national lenders, and realty agents will not give preferential treatment for PNC products; with each partner profiting from the success of the system, they say, steering borrowers to PNC isn't the key to the lender making money.
While the companies said Coldwell Banker chose PNC after reviewing more than 30 lenders, it couldn't have hurt that PNC had acquired the Sears Mortgage Banking Group, a former corporate cousin of Coldwell Banker when both were owned by Sears, Roebuck & Co.
The Home Mortgage Network will begin rolling out the system in 10 major states and hopes to be up and running in company-owned offices by summer, says Mark Ulmer, chief administrative officer. "We're starting to talk to (franchisees)," he says, adding that some have hundreds of millions of dollars in loan volume. But he insists that unlike a CLO system, as defined by RESPA, this is a venture "owned and invested in by two companies. We're not sitting down and paying referrals," which would be the structure if the realtors were operating the system and lenders took a minor ownership stake and asked to be listed on their network.
Anchor Financial Group, a mortgage banker and broker in Raleigh, NC, has been approaching realty companies as Well as builders and developers for arrangements to do "point-of-sale financing," says Elizabeth Younce, vice president and director of specialized lending. While Anchor hadn't finalized any such deals by February, Younce thinks they will "transform the industry."
Using mortgage analysis software from GHR Systems in Wayne, PA, Anchor has developed a multi-lender system that can put tremendous power in a personal. computer. "All you need is a laptop with that software, an internal modem and a phone line," Younce says. "You can download the consumer's credit report in front of them, prequalify them for a loan and show them loan analyses side by side."
Sounds great for lenders, right? Feldstein remains skeptical. "Individual realtors just want to make sure that the home purchases go through and they get their commissions, so they direct people to lenders with the lowest rates and the best service," he says. "Realtors don't make good mortgage salespeople."
While he expects lenders' experience with CBAs to improve, he sees the growing number of locked-up arrangements as presaging a major shift in the way mortgage lenders do marketing. "If lenders can't get referrals from brokers, they will have to market directly to consumers," Feldstein says. That would surely entail higher costs.
However the CBA process develops, lenders like PNC aren't willing to let others steal a march. "The mortgage business is changing, and we realized, that we can participate in it or we can spectate," Ulmer says. "If you think that business will be done the way it has always been done, you wouldn't do this."