GMAC Mortgage has an innovative approach to cross-selling mortgage lending services to different customers. The GM Family of employees and retirees, as well as homebuyers using GMAC's Better Homes & Gardens agents, are among the targeted groups being sold a growing array of home services.
NOTE: This is the second of a two-part series on GMAC Mortgage's innovative approach to origination strategies. Part one appeared in the September 1999 issue of Mortgage Banking.
GMAC MORTGAGE PRESIDENT MIKE O'BRIEN CONSIDERS HIMSELF A BLESSED MAN. He's got a parent-General Motors--with deep, deep pockets and hundreds of thousands of employees, and he knows that if he uses that gift correctly he can drive customers right to his front door.
On the other hand, the president of GM isn't exactly sending a memo out to every GM employee, supplier and retiree that says: "Go use GMAC for your mortgage and real estate services!" O'Brien has had to come up with another way to accomplish the same end. The route he picked has produced a customer access- and customer delivery-focused business plan for competing in today's product-centric mortgage market.
The plan started out with the knowledge that people don't wake up in the middle of the night craving a new mortgage. But they do wake up wanting a first home, a move-up home, a vacation hideaway or a retirement villa.
To attract those customers, O'Brien decided that Horsham, Pennsylvania-based GMAC Mortgage Corporation needed to build a service delivery platform that was broad enough to carry all the services surrounding homeownership. That decision led to the formation of Liberty Corner, New Jersey-based GMAC Home Services, a GMAC division that has been acquiring real estate companies and relocation companies across the country. And, when it hasn't bought a service provider, it's created preferred alliances for its customers.
The strategy isn't a new one. Using a virtually identical plan, Parsippany, New Jersey-based Cendant Corporation originated about $26 billion in mortgages last year, according to the company's Web site. Via its NRT joint venture with New York City-based Apollo Management, L.P., Cendant has been on a two-year real estate brokerage-buying spree that's gobbled up 700 real estate offices in 20 metropolitan markets. Together, they sold about $73 billion in real estate last year. Cendant also owns the Century 21, ERA and Coldwell Banker brand names--franchises that claimed a 25 percent share of the 1998 U.S. residential real estate market.
Cendant has managed to make the business model work, as have some large regional real estate brokers. But many others--such as Sears and Century 21--went down that road earlier only to turn back. What makes O'Brien think horizontal integration will work for GMAC?
"I believe there's a huge shift going on, fueled by advances in technology and the Internet," says O'Brien. "The power over the transaction has begun moving away from the supplier and to the customer. We're all a lot smarter and better educated about the product we want. We didn't get into the real estate services business to do mortgages. We got into it because we like the real estate business, and I want to be able to direct customers who we have a relationship with to a quality service provider."
Where, exactly, does the mortgage business fit into the overall scheme? In two places. One Home Services division specializes in relocation mortgages that companies offer to transferring employees. The second division creates partnerships with major independent real estate companies and offers a host of mortgage brokerage options to BH&G franchisees.
Why is a company that now owns a real estate franchise seeking deals with independent real estate companies? GMAC Home Services President Dick Schlott answers that question by going down the list of the top six real estate franchises and their mortgage alliances: Cendant Mortgage works with brokers from its three franchises--Century 21, ERA and Coldwell Banker. BH&G is now tied to GMAC. That leaves only two other real estate brokerages with sizable national volume--RE/MAX and Prudential Real Estate Affiliates, neither of which has a mortgage operation of its own. Independent real estate brokers, meanwhile, control more than half the residential real estate transactions in America, according to Laurie Moore-Moore, editor of REAL Trends, a newsletter that tracks the U.S. residential real estate market.
A third division, relocation, manages employee transfers for corporate clients. To gain market share in that business, GMAC Home...