Pairing up with realtors; big-name lenders have been actively inking deals with real estate brokerage firms to create ventures to capture purchase business. Some very big lenders are getting impressive production from these mortgage ventures.

Author:McGarity, Mary
Position:Cover Report: Business Outlook

REACHING THE HOMEBUYER FIRST. That has long been a goal for mortgage lenders, and is even more important in today's increasingly competitive market where companies are scrambling for purchase business. * Real Estate agents are a natural source of purchase mortgages, and lenders are employing a variety of strategies to court real estate agents for purchase referrals, ranging from the traditional to the cutting-edge. * Many of the largest mortgage lenders now have some sort of an alliance with one or more real estate companies. Des Moines, Iowa-based Wells Fargo Home Mortgage, Horsham, Pennsylvania-based GMAC Mortgage and Calabasas, California-based Countrywide Home Loans Inc. all have joint ventures with realty companies, and Charlotte, North Carolina-based Bank of America was announced the "preferred lender" for Greenwood Village, Colorado-based RE/MAX International Inc. last summer. *

One-stop shopping

The consumer demand for one-stop shopping in home-buying is driving much of the partnering with real estate brokerages, industry executives say. "We as an industry are listening to the consumer saying they want one-stop shopping, and we're responding to that," says John Stewart, executive vice president of strategic business development at Countrywide Home Loans Inc. "It's really logical that if we're all involved in the home-buying process, we would align ourselves such that we're providing good service at a good price," he adds.

According to a 2002 study conducted by Harris Interactive Inc., Rochester, New York, in conjunction with Murray Consulting Inc., Littleton, Colorado, consumers clearly indicated "a strong preference for the option of a simplified one-stop shopping process" where all services required for the home-buying transaction were provided through one source.

According to the survey, 82 percent of all buyers would "strongly or somewhat consider" using a one-stop shopping service. "This is a significant increase from the total levels of acceptance found in the [National Association of Realtors] survey of 1999, when 58 percent of buyers were interested in one-stop shopping," according to a summary of the Harris/Murray study.

The Harris/Murray study found homebuyers, both recent and future, believe there are numerous benefits to being able to acquire all necessary services from one source. Those benefits include simplicity and convenience, as well as quicker turnaround times, the study noted. The survey also found that real estate agents continue to have an enormous influence on the mortgage and settlement service providers that homebuyers use.

Choose partners wisely

For every successful Realtor/mortgage joint venture, there are at least as many that have failed, mortgage executives point out. "If I started a mortgage company three or four years ago to take advantage of the refi market, right now I'd be saying, 'Now what? I think I'll do strategic alliances.' I think that's dangerous. The purchase market is relationship-driven, not transaction-driven. It really takes a partner who understands how important the relationship is," Stewart says.

Real estate brokers should be careful in choosing their strategic alliance partner and look for a long-term commitment, Stewart adds.

"Everyone is looking at developing some type of an affiliation or relationship [with a brokerage firm]," agrees Joe Jackson, senior vice president with Wells Fargo Home Mortgage. "People need to pick their partners based on their experience and capabilities versus who comes in with the flashy presentation," Jackson says.


Wells Fargo was one of the first major lenders to develop formal affiliations with brokerage firms, according to Jackson. "We've been learning all those years how to make it work. The value of that experience is huge," he says. Wells Fargo has more than 600 affiliated business arrangements, including joint ventures, marketing agreements and desk-rental agreements, Jackson says.

Wells Fargo counts among its joint-venture partners three of the top five real estate organizations in the nation (ranked by closed transactions in 2002 by REAL Trends Inc., Littleton, Colorado), according to Jackson. They are: Long & Foster Companies, Fairfax, Virginia, which along with Wells Fargo formed Prosperity Mortgage; Real Living Inc., Columbus, Ohio, a partner with Wells Fargo in Lenders National Mortgage; and Home-Services of America Inc., Edina, Minnesota, the joint venture that does business under names including Edina Realty Mortgage, Edina, Minnesota; MidAmerican Home Services, Lincoln, Nebraska; and Plaza Mortgage, Overland Park, Kansas.

Partnering with three of the top real estate companies in the United States "gives us a pretty dominant market presence," Jackson says.

The mortgage companies formed by the real estate brokerage joint ventures have the ability to do a broad section of products, "from super-easy relocations to the very difficult subprime. We approve about 19 out of 20 customers," Jackson says.

Wells Fargo typically will see a capture rate of about one-third of a Realtor's business in its joint ventures, Jackson says. "We do have some that are in the 50 percent ranges," he adds.

And a 50 percent capture rate is the goal for all Wells Fargo's joint ventures. "We've seen an increase year over year. A 45 percent capture rate is very impressive, and 50 percent is hitting the ceiling," Jackson says.

Wells Fargo has its own proprietary underwriting system that "enables us to go to one engine and get a decision on multiple products. We can make a decision with fewer data elements, so we're able to approve more people at the point of sale with less-intrusive questions than other people using [Fannie Mae's Desktop Underwriter[R] and Freddie Mac's Loan Prospector[R]]. It's about half the questions," Jackson says.

The consumer trend toward one-stop shopping will make real estate and mortgage affiliations more important than ever, Jackson says. "I believe customers are looking for their real estate agent to be their advocate or adviser in all aspects of the home-buying experience. That includes mortgage, title and even lawn services. They may do research, but most people prefer one-stop shopping."

In addition to its joint ventures, Wells Fargo has a number of marketing agreements with Realtors. "They're popular quite often as a first step into the mortgage business. It's also a way to cover smaller locations or those who don't want to be as directly connected with the lending process. That includes desk rentals, co-advertising or putting our brand name on their Web site," says Jackson.

Seventy percent of the organizations Wells...

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