Magazine article American Banker

As Margins Shrink, Lenders Go Looking for Ways to Diversify

Magazine article American Banker

As Margins Shrink, Lenders Go Looking for Ways to Diversify

Article excerpt

Mortgage bankers are eyeing new products and services - from credit cards to financial planning - to supplement bread-and-butter lending.

At Source One Mortgage Services Corp., executives are close to closing a marketing deal with a major credit card company. It is envisioned that Source One would offer a card with its name and logo to a base of 400,000 mortgage customers.

A spokesman for the Farmington Hills, Mich., mortgage company declined to name the card vendor but said customers would receive inducements for using the product.

Source One's step comes while mortgage lenders' margins are being squeezed and originations are on the wane after the early 1990s' refinancing boom.

Diversification makes sense as long as lenders are prudent, said Gareth Plank, a mortgage company analyst at Mabon Securities Corp., San Francisco.

Mortgage banks "have the customers and know what kinds of needs they have," Mr. Plank said. "The issue is how much management is fractured by getting into the new business and is the company putting capital at risk."

Industry executives say that customer demand is partly driving the diversification efforts.

"The whole premise is consumers have gotten more savvy," said Laura Snow, vice president at Countrywide Funding Corp., Pasadena, Calif.

Borrowers, she said, "want to use their mortgage as a financial instrument" that can be linked to other services.

For instance, Countrywide may begin offering its customers financial planning services that will use collected data to craft investment ideas. Right now, the company is testing the program with some employees and customers, but it has not set a date for a wider rollout.

Countrywide also remains interested in offering mutual funds, but has had delays in implementing plans that were disclosed in 1993. Countrywide, which has 1.1 million customers, still hasn't found the right partner or product mix, Ms. …

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