In the search for new sources of home-loan originations, many lenders think the Holy Grail is affinity lending - making loans to members of professional, trade, or other organizations.

But since early last year, when affinity lending became a buzzword for weathering a high-rate environment, this business has gone through significant changes. Contracts are harder to come by, and membership groups now demand more service - and up-front money - from affiliate lenders.

Further unsettling the business is the impending sale of Clayton, Mo.- based Prudential Home Mortgage Co., the nation's dominant affinity lender. American Banker spoke with Thomas J. Handler, head of affinity lending for Lincoln Service Mortgage Corp., Owensboro, Ky., about the changing market and his recipe for success in the future.

Q.: How has affinity lending developed in the recent past?

HANDLER: Affinity lending has really become a focus in the last four to five years as lenders have started moving to nontraditional mechanisms for getting mortgages.

(That's because of) a couple of reasons. One is to form a more consistent basis through different cycles of the mortgage banking period. Second, it is more controlled. Third, if you do it right, you get a lot more return on the investment dollars you put into it.

But there have been a lot of people who claim that they are affinity lenders who stay in it for a year and get out. I see it constantly.

It lowers the integrity of the marketplace to some degree. They offer things that are beyond the marketplace. There was one on the West Coast that was offering (very low prices) to get a bid. I am not sure they are in business anymore.

Q.: What is the best way to get that good 2% response from affinity members?

HANDLER: The most common way today is repetitive mailings in the associations' or the affinities' mailers - paychecks if it is a corporation, statements if it is a credit union.

Going forward, you are going to see more electronically oriented communications with customers. I am not sure how it is going to develop. I think the early signs are going to be seen through the current things, like the (World Wide) Web or America Online.

If there is a mechanism to put sales materials in that e-mail box, that would be a very good example of a way an affinity could work with a mortgage bankers to get things done.

Q.: How have affinity groups' demands changed?

HANDLER: I am noticing that they are increasingly using their membership as a mechanism to get revenues. I am sure it was always the case to some degree. But it is becoming a more specific goal in the last five or so years. I expect it is going to be a continuing goal going forward.

Q.: How does that affect lenders like Lincoln?

HANDLER: It specifically affects the lender because the affinity groups are asking for, in certain cases, some very significant dollars up front. It is not uncommon for these things to go into the hundreds of thousands of dollars. I know one that was $325,000. Some that we are looking at are $30,000 a crack.

And if their dollars are not spent correctly, you can have a huge money loss situation on your hands, which can be very damaging. That's the risk, that is the huge risk.

Q.: What do you think a lender needs to do to position themselves well in the affinity lending market?

HANDLER: Aside from the basic marketing and winning accounts, a lender truly has to understand what I call second-tier marketing - what is going to motivate the consumer or borrower within that affinity to buy something from that affinity. Most affinities don't have extremely high levels of allegiance.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.