Cefrina and James Allen shopped around for a mortgage before they met with a loan officer at Prudential California Realty’s in-house mortgage company earlier this year. The couple liked that the loan officer presented all their options and that he didn’t pressure them.
Plus, Cefrina Allen said, getting a mortgage through their realty broker had an added bonus.
“Everything was right under one roof,” she said.
As interest rates climb upward, more banks are stepping up their efforts to reach home buyers like the Allens by getting closer to the source of home purchases – realty brokerages. With loan refinancings dropping off, lenders are trying to get as close as possible to the point of sale as a way of capturing more purchase-money loan business.
“There’s much more increased energy and effort in building the purchase business,” Jim Panepinto, president of Chase Ventures Holdings, an affiliated company of Chase Home Finance, said.
The uptick is apparent from the seemingly weekly announcements of new broker-lender partnerships. Countrywide Home Loans has announced at least three new ones within the past six weeks.
Such partnerships aren’t new, but an increasingly competitive marketplace with diminishing loan volume is lending more urgency to the deals for both lenders and brokers.
Lenders view these partnerships as a way to align themselves with realty companies that already have a large customer base, Panepinto said.
And realty brokers have realized that services they once considered to be “ancillary” should be part of their core business to improve their position within the marketplace, said Chuck DelGrande, managing director and head of the real estate sector for Presidio Merchant Partners.
DelGrande also sees another reason for the new partnerships. There’s a sense, he said, that banking will become less regulated and although no one’s sure yet what it will look like, lenders want to position themselves for it.
Meanwhile the capture rate of lender-brokerage partnerships hovers only in the high teens to low 20s, DelGrande said. Some partnerships enjoy a higher penetration rate, but others can’t seem to get the number north of 10 percent, he said.
Still, those low numbers don’t deter potential partners. Lenders point to the variety of loan products they plan to offer as a potential way to reach more home buyers.
Bank of America, which began partnering with realty brokers about a year ago, plans to make mortgages just one of its offerings. Jeff Mandel, the bank’s national real estate partnership executive, declined to give any details, but he said the bank is building a “financial services relationship with mortgage as the cornerstone.”
Bank of America had been partnering with home builders for a while, but decided to target realty brokers as well to capture another segment of home buyers. The move came as the bank realized its refinance volume, like that of other lenders, eventually would drop off, Mandel said.
Mandel said the bank looked for brokerages that would be “true partners” for the long haul, matching Bank of America’s culture and philosophy. That has resulted in one publicly announced partnership so far, with RE/MAX 100, which has eight offices in Maryland and northern Virginia. More than 10 other partnerships have been signed, but not yet announced, Mandel said.
The search for the right fit was an objective Ed Krafchow, president of Prudential California, Nevada and Texas Realty, kept in mind when the company sought a partner for its mortgage operation.
Hear what Ed Krafchow has to say about broker-lender partnerships:
Last September, the Prudential company partnered with JP Morgan Chase in a 50-50 joint venture. Krafchow said few financial companies were interested in an even split, but Prudential believed that was the only way to go. Chase’s willingness to accept that arrangement and the lender’s good fit with Prudential’s culture led the brokerage to choose the New York-based company to help run its home loan group.
Prudential’s mortgage operation was already closing more than $1 billion a year in loan fundings, but Krafchow believed a financial company’s experience would grow the operation even more, he said.
DelGrande, who helped put together the Prudential-Chase deal, said many large brokers who have a mortgage division are considering similar partnerships. They’re weighing the impact such a move could have on their bottom line and whether they’d be able to retain any control of the lending operation.
Most large realty brokerages provide some type of ancillary service either directly or through a partnership, but providing mortgage services on their own can be a challenge because “most of these companies don’t know the mortgage business,” Panepinto said.
Partnering with a lender can provide expertise and add a revenue stream to a broker’s business model, he added.
Chase has been putting together such partnerships for close to a decade. The lender has more than 40 joint ventures and 250 other business relationships on the books and more are in the works, Panepinto said.
Like others, Panepinto sees the broader range of products now offered, such as home equity lines of credit, as a big change in these partnerships.
As Krafchow explains, it’s part of a larger move toward a one-stop shopping experience for home buyers, who like the convenience. But broker-lender partnerships won’t succeed unless realty agents feel comfortable recommending the loan services to buyers, he said.
When Prudential started its mortgage operations a decade ago, Krafchow said, agents were skeptical and said it wouldn’t work. Now, the capture rate is 22 to 25 percent. That results from competitive products and services, which in-house mortgage operations must provide to remain viable, he said.
Still, Krafchow encourages other brokers to partner with lenders, and he doesn’t worry that such deals will encourage banks to enter the brokerage business.
“There’s an opportunity for both industries to grow together,” he said.
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