A Drastic Plastic Solution : Credit Cards for Houses Seen as Next Logical Step in Hot California Market
Californians can’t seem to get enough plastic, and now they can get a credit card to help them with the ultimate purchase: a home.
A mortgage company with more than five dozen franchise operations in Orange and Los Angeles counties is pre-approving home buyers much the way banks and other lenders routinely pre-approve customers who go shopping for cars.
Such pre-approval is not new, but what gives CompuFund National Mortgage Network a little edge is that it guarantees loan approval within 2 hours for most customers and locks in an interest rate for 60 days.
The company, based in Pleasanton in Alameda County, also issues its HomeBuyer Express credit card with a mortgage loan limit on it, thus extending the buying power of people who use pieces of plastic to charge almost anything. The card would enable a buyer to move quickly on property.
“The average consumer can use this as another way to do home shopping,” said Sigmund Anderman, CompuFund’s president. “Even if they use our services as a way to get another loan someplace else, God bless them. They should be shopping around for low rates.”
Most new credit card customers, though, are apparently not abandoning CompuFund. Anderman said more than 80% of the credit cards issued since June led to mortgage funding. Most of the applicants have been average, middle-class buyers, he said.
CompuFund’s effort is one of the many marketing campaigns that cash-rich mortgage bankers are devising to lure a diminishing number of home loan applications.
Southern California may not be feeling the effects of a real estate slowdown, but mortgage companies nationally are shutting their doors because of lower demand, mortgage bankers said.
Anderman said demand has sunk 25% nationally.
The lower demand means that competition in the mortgage industry is intense, said Walter P. Blass, president of Shearson Lehman Hutton Mortgage Co. in Newport Beach, one of the nation’s largest mortgage firms.
Meanwhile, he said, the cost of processing loans has been soaring, and the only way to cut costs is to cut the number of documents needed for loan approvals, which is what most pre-qualification programs do.
The danger in weaker underwriting is evident, he said, in that more loans could go sour.
Shearson Lehman is developing a pre-approval home loan program for the 40,000 employees of its parent company, American Express Co., and its subsidiaries. If successful, the program could be extended to employees at other select companies, Blass said.
Just last week, the Hammond Co., a regional mortgage banking firm in Newport Beach, began offering its Starter Loan. The program, for adjustable-rate loans only, allows a borrower to skip the first three mortgage payments, which are tacked onto the loan as principal.
Over the typical 30-year life of the mortgage, the borrower ends up paying about three times the amount saved by skipping the first payments. Borrowers have been receptive nonetheless, company president Thomas T. Hammond said, as business jumped 25% in the first week the Starter Loan was available.
“A mortgage is a mortgage is a mortgage,” Hammond said. “You can twist and turn them around, fiddle around with cash flow and other things, and they all come out the same. We’re all just trying to think of things to get more business.”
But overall, new gimmicks and massive advertising do not often help much, Hammond said, because studies have shown that transactions are typically controlled by realtors or builder-sellers. And they usually take home buyers to the same few lenders they have worked with in the past--even when customers ask for specific lenders, he said.
Last fall, Grubb & Ellis, a real estate brokerage, teamed up with the financial giant Citicorp in New York and the Tokyu department store in Tokyo to offer credit cards with $500,000 lines of credit to wealthy Japanese for buying homes in Hawaii and on the West Coast.
“We haven’t had any direct purchases yet, but the first tour group is coming in March or April to look at property,” said Tracey Schiavello, marketing vice president at the Grubb & Ellis regional office in Irvine.
“We’ve had about 30 inquiries, and three or four Japanese investors who need to buy soon will be coming over in the next month or so.”
CompuFund’s credit card has taken off in the last few months, Anderman said. Of 2,000 cards issued last year, most were issued in the last few months, he said.
Unlimited Credit Lines
CompuFund, which offers loans through 110 mortgage companies in California and 20 more in Seattle and Dallas, has not limited its lines of credit. Recently, Anderman said, the firm issued a card with a credit limit of more than $900,000, but the average loan is $140,000.
Most prospective borrowers need only to bring in a few months worth of pay stubs to show where they work and how much they make and recent bank statements showing that they have the money for a down payment, he said.
Within 2 hours, CompuFund will verify those figures and the borrower’s credit history, and it will determine how big the loan can be. Within a day, the company will issue a credit card with the loan limit on it. The loan is contingent only on an appraisal of the home.
Borrowers who must rely on income from rental property, trusts, investments or sources other than salaries will have to provide more information to document their incomes, Anderman said. Those borrowers will not get approval within 2 hours, he said.
No Elaborate Applications
Anderman said elaborate applications, forms and many verifying documents are not needed for most customers. Nothing, after all, is foolproof, so an inventive defrauder cannot be stopped, he said, no matter what is required.
Use of a credit card may provide CompuFund with good will from customers who are used to plastic buying power, Anderman said: “In the world of mortgage banking and home loan shopping, this concept provides the consumer with almost instant approval.”
