Banks Take a New Tack
On Mortgage Lending
With Loan Volume Slowing,
Rebates and Rate Discounts
Are Used to Woo Customers
By RUTH SIMON
November 1, 2006; Page D3
Get a mortgage from another lender and we will pay you $250.
That is the latest marketing twist from Bank of America Corp. With competition for home loans increasing, the
Charlotte, N.C., lender is encouraging its customers to apply for a mortgage with the bank and then shop
around. If they decide to get their home loan elsewhere, Bank of America will write a $250 check to cover a
portion of their closing costs.
The Bank of America offering is the latest sign some lenders are beginning to emphasize price, service and
stronger customer relationships in the face of slowing loan volume. Mortgage originations fell 29% in the third
quarter compared with the same period last year, according to the Mortgage Bankers Association, as the housing
market cooled and rising interest rates made it less attractive for borrowers to refinance.
[Bank of America]
Last week, Charles Schwab Corp. said it would give most of its bank and brokerage customers a 0.25 percentage
point discount on the rate for a new adjustable-rate mortgage or home-equity loan and a 0.125 percentage
point discount on the rate for a fixed-rate mortgage. Until now, the discounts were available only to clients who
had combined bank and brokerage account balances of more than $250,000.
In August, E*Trade Financial Corp.'s mortgage unit began offering $500 off mortgage closing costs to the
company's banking and brokerage customers who have less than $100,000 in total assets at E*Trade. E*Trade
customers with assets of $100,000 or more get a 0.125 percentage point mortgage-rate discount.
Other lenders are using rewards programs to try to boost customer loyalty. National City Corp. gives customers
enrolled in its rewards program 50,000 bonus points when they take out a mortgage with the bank. Customers
also earn bonus points for tapping a new home-equity line of credit. Citigroup Inc. offers special reward points to
customers with a Citibank mortgage or home-equity loan, provided they also have a Citibank checking account
and debit card. The points can be redeemed for a variety of rewards, from gift cards to plane tickets.
The offers represent a new tactic for lenders, which for years vied for customers by rolling out mortgage products
that allowed borrowers to lower their monthly payments. These include interest-only mortgages that allow
borrowers to pay interest and no principal in the loan's early years, option adjustable-rate mortgages that let
borrowers make a minimum payment but can lead to a rising loan balance, and mortgages with 40-year terms.
But the flow of new products has slowed and bank regulators have raised questions about the risks some
nontraditional mortgages may pose to borrowers and lenders.
[Less Lending]
Some lenders are wooing customers with pricing guarantees. LendingTree.com, a unit of IAC/InterActiveCorp, is
offering a $500 price guarantee to certain borrowers who use its loan network to shop for a home mortgage. The
offer, which runs through year end, applies only to borrowers taking out standard fixed-rate mortgages for
$417,000 or less. To qualify, borrowers must document they received a better offer from another source on the
same day an application was submitted to LendingTree, an online service that matches borrowers with lenders.
LendingTree will pay the $500 if it can't get one of its partners to meet or beat the offer. So far, only one
customer has put in a request for the $500 payment, but the request was declined because the loan was for less
than $100,000, the company said.
Bank of America's "Best Value Guarantee" program is designed to attract borrowers who think they would get a
better deal from a mortgage broker or another competitor. To qualify for the payment, customers must have a
checking, savings or other account with the bank, apply for a mortgage and then provide proof they obtained the
home loan elsewhere. During the pilot tests, only a handful of bank customers claimed the payment, said Senior
Vice President Eric Telljohann. The offer is being rolled out in a number of East and West Coast markets and
should be available nationwide by January, the bank said.
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