Magazine article American Banker

Growing Pains for Affinity Lending Business

Magazine article American Banker

Growing Pains for Affinity Lending Business

Article excerpt

In the search for new sources of home-loan originations, many lenders think the Holy Grail is affinity lending - making loans to members of professional, trade, or other organizations.

But since early last year, when affinity lending became a buzzword for weathering a high-rate environment, this business has gone through significant changes. Contracts are harder to come by, and membership groups now demand more service - and up-front money - from affiliate lenders.

Further unsettling the business is the impending sale of Clayton, Mo.- based Prudential Home Mortgage Co., the nation's dominant affinity lender. American Banker spoke with Thomas J. Handler, head of affinity lending for Lincoln Service Mortgage Corp., Owensboro, Ky., about the changing market and his recipe for success in the future.

Q.: How has affinity lending developed in the recent past?

HANDLER: Affinity lending has really become a focus in the last four to five years as lenders have started moving to nontraditional mechanisms for getting mortgages.

(That's because of) a couple of reasons. One is to form a more consistent basis through different cycles of the mortgage banking period. Second, it is more controlled. Third, if you do it right, you get a lot more return on the investment dollars you put into it.

But there have been a lot of people who claim that they are affinity lenders who stay in it for a year and get out. I see it constantly.

It lowers the integrity of the marketplace to some degree. They offer things that are beyond the marketplace. There was one on the West Coast that was offering (very low prices) to get a bid. I am not sure they are in business anymore.

Q.: What is the best way to get that good 2% response from affinity members?

HANDLER: The most common way today is repetitive mailings in the associations' or the affinities' mailers - paychecks if it is a corporation, statements if it is a credit union. …

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