With high mortgage rates and a weak purchase market forcing lenders to seek more creative ways of originating loans, HomeBanc Mortgage Corp. is trying to forge alliances with homebuilders.
The Atlanta lender will offer marketing and technology tools to builders that agree to refer buyers for mortgages. HomeBanc will promise quick approvals - or rejections, so the builders are not left with unsold properties.
A builder services group has been formed to establish such alliances, and HomeBanc says it has signed up two Atlanta homebuilders so far: Brayson Homes and one the lender said it was not yet free to identify.
One hundred loans are now being processed under those deals, HomeBanc said.
To run the effort HomeBanc has tapped Chase Mortgage executive Rick Floyd and homebuilder executive Kelly Allison. The two new HomeBanc vice presidents bring a combined 24 years of experience in the mortgage and building industries.
Mr. Floyd said it will help participating homebuilders with advertising in some cases.
Patrick S. Flood, HomeBanc's president and chief executive, said his company "will bring our full cadre of support capabilities organizationally to the table when we align with them.
"It will be an a-la-carte thing; whatever works best for them, whatever they need, we're going to provide," he said.
Homebuilders and first-time homebuyers represent a vibrant source of loans, Mr. Flood said. People buy homes as soon as they can, he said.
Atlanta has been a good place to find new homebuyers, he noted. "Metropolitan Atlanta has led the country in new home starts in the last six years."
After setting records in toward the end of the 1990s, originations have plummeted last year and this year. The 2000 total will probably come in at $1 trillion, and next year's may drop another 2%, according to the Mortgage Bankers Association.
To counter the decline, lenders such as HomeBanc have begun soliciting nontraditional sources of loan origination.
For example, Celeris Financial Services, a new division of FleetBoston Financial Corp., is cultivating relationships with what it calls "trusted advisers," such as financial advisers or tax attorneys. And IndyMac of Pasadena, Calif., has a program to help real estate professionals originate loans.
"We've simplified the mortgage process so much" that stockbrokers and other professionals can now originate loans, said Bill Naryka, former chief financial officer of Fleet Mortgage and now chief executive officer of Celeris. "They are trusted advisers and they may be interested in giving their clients more services."
HomeBanc has traditionally focused on the purchase loan market, which has been far more stable than the refinance market, which collapsed in 1999. HomeBanc's purchase volume has dropped 5% to 6% this year, Mr. Flood said, but companies that depended more on refinancing did worse.
"There's a huge market-share growth opportunity, and that's what we're looking for," Mr. Flood said. "We're constantly looking for ways to grow."
The company expects to lend "hundreds of millions of dollars" through the new program in the next year or two, Mr. Flood said. l HomeBanc's builder business is around 15% to 20% of its total business, Mr. Flood said, but he expects that to double in the next two years.
Michael McMahon, an analyst with Sandler O'Neill & Partners in San Francisco, said that courting homebuilders is not a new idea. He said many players in the mortgage industry are attempting the same thing, to cut out a middleman and get closer to the point of sale.
Countrywide Credit Industries Inc. has a big builder division, he noted, but he also gave HomeBanc's move high marks.
"If you're closer to the consumer, then you have a better chance of generating more revenue than if you're sourcing your loans through brokers," he said. "By forging alliances with homebuilders, affinity groups, or maybe even credit unions where you have control over a population, you're better off than being one of literally hundreds of originators competing for the same customer."
David Olson at Wholesale Access, a Columbia, Md., firm that conducts studies on residential lending, said the HomeBanc program makes sense. "The parties could support each other," he said. "Builders do not specialize in finance," and having a lender involved can help the homebuilder sell the home more quickly.
Mr. Floyd headed Chase Mortgage's Georgia operations for the past five years as vice president and regional manager. Ms. Allison was the vice president of finance and sales with Atlanta-based Torrey Homes, one of the Southeast's largest homebuilders.
Ms. Allison said most mortgage companies have no idea what is important to builders' success.
Mr. Flood said HomeBanc will tailor its services and product offerings to the type of borrower that the builder brings in. Since builders tend to build houses in the same price range, they bring in a homogeneous group of borrowers looking for the same types of loans, Mr. Flood said. This makes it easier for HomeBanc, he said.
For now, Mr. Floyd said HomeBanc is only looking at companies that build over 100 units of new housing a year. "There's economics in numbers," he said.
Also, he said, HomeBanc will offer more help to bigger companies. "We're going to add value back to the builders based on the volume that they give to us. A builder that gives us 200 loans will probably get more services than a guy giving us 75 loans a year."
At the moment Mr. Flood is running the show. But he said he may change that when the unit gets off the ground.
"If we wind up acquiring another company or growing faster than we think, I may change the organization structure at some point," he said.