Buyers gladly skip a step

As the Internet has increasingly changed the way consumers shop for everything from appliances to houses, a growing number of home buyers are now cutting out the mortgage broker in their transactions and instead having their real estate agent originate loans for them online.

Permitted in more than 30 states, the practice has taken off nationwide, including in California, where more existing homes are bought and sold than in any other state in the country. According to the National Assn. of Realtors, last year California accounted for nearly 12% of transactions nationwide.

Because of the unregulated nature of the Internet, experts say it’s hard to track how many of these companies exist. But NAR spokesman Lucien Salvant said that he has “a gut feeling these kind of companies are growing.”

Locally, at least three such agent-assisted loan origination companies have set up shop: Go Loan, based in Los Angeles; LoanWorks in Pasadena; and Wholesale Direct Mortgage Network in Irvine.

Consumers, already trusting their real estate agent with one of the biggest single purchases of their lives, report that they like finishing the transaction with the person who has been with them throughout the process and prefer not to disclose their financial histories to a stranger.

There are financial benefits too: Often real estate agents can give the buyer a better deal, as they don’t take the standard 1% or more commission that many mortgage brokers do.

With Go Loan, agents can choose their commission rate -- anything from .75% to 1.5%. To stay competitive, most choose to charge clients the lower percentage. LoanWorks sets commissions at a flat .5% for home purchases.

For their part, Realtors and agents say they don’t mind wearing two hats. Handling the financial end of the home-buying deal deepens relationships with clients and gives them more control during escrow by not having to depend on a third party for answers.

They also like the extra income they earn without much additional work.

Harry Madera, a real estate agent with Banker’s Realty in Torrance, earned an additional $30,000 in commissions last year, money made for the most part by simply clicking a mouse.

For Madera, one of about 3,300 real estate professionals in Colorado, Illinois and California who have signed on as LoanWorks associates, the process has even helped close deals he otherwise might have lost.

“I can go online, start the process on a Sunday night at 11 p.m. and submit the offer the next morning, before anyone else does,” Madera said. “With banks you can wait two weeks before you get your approval, and the house is gone.”

Madera, who has closed two deals this year with LoanWorks and three with other online companies, said he’s even gotten a preapproval online while a client was still walking through an open house.

Although his main business is selling homes, loan origination, especially in a market of declining inventories and fewer commissions, has become “the icing on the cake,” he said.

Shannon Johnson, 32, recently purchased a $435,000 three-bedroom home in Encinitas in Northern San Diego County with a broker using LoanWorks.

“They had the best rate,” Johnson said. “I did shop around to a couple of traditional mortgage brokers with whom I had worked in the past,” he said, but they couldn’t compete.

Johnson’s real estate broker, Jim Cheeseman of Coastal Real Estate in Cardiff-by-the-Sea, was able to get Johnson a mortgage with 5% down, a 5.75% interest rate with no points on the first mortgage and 7.37% with no points on the second.

For his effort, Cheeseman received a commission from LoanWorks of .5% of the loan, or about $2,100.

How does agent-assisted financing work?

Real estate agents go online, type in information on a loan application for their home-buying client and hit the send key. Some 10 to 20 minutes later, barring unforeseen circumstances, a conditional approval comes back.

Little follow-up is involved for the real estate agent; the staff at the online origination company coordinates the loan process, updating the home buyer’s file during escrow.

At Go Loan, loans are funded through parent company Delta Home Loans. With LoanWorks, loans are funded through parent company IndyMac Mortgage Bank. With the smaller Wholesale Direct Mortgage Network, loans are funded through a dozen selected lenders. FHA loans are not available through such services.

While some agents -- typically those who are independent or work for smaller real estate firms -- are catching on to this emerging way of conducting business, other real estate and mortgage professionals question whether the practice could potentially compromise the integrity of the home buying process.

John Courson, a California mortgage broker and chairman of the Mortgage Bankers Assn. of America, worries that a real estate agent -- hoping for both a sale and a loan commission -- might be motivated selfishly and not act in the home buyer’s best interests.

One concern is the potential for buyers to get in over their heads. “Everyone that buys a house cannot always afford the mortgage,” Courson said, “... and someone has to tell them.”

Just because a real estate agent finds a loan for the client to clinch the sale doesn’t mean the buyer can truly afford that loan. The practice, he said, “raises some very serious issues.”

It was unscrupulous activity in the residential real estate industry that gave Adi Harari, founder of Delta Home Loans, the idea to create Go Loan in 2001. For years, some real estate agents had received monetary kickbacks from loan officers for their referrals, an illegal practice in the industry.

“My loan officers told me it is hard to compete,” Harari said, with those paying real estate agents for referrals. “So we had to come up with a legal way to compete.”

In 1994, the U.S. Department of Housing and Urban Development clarified that real estate professionals could receive compensation for handling a certain number of tasks in the loan origination process. That and the desire to compete gave Harari the incentive.

Go Loan financed $135.7 million in loans last year for home buyers throughout California, according to Harari. Now, with about 1,300 real estate affiliates statewide, Go Loan plans to roll out its services in Florida, Michigan, Colorado and possibly Utah in the next few months.

While some real estate agents and brokers -- a number of whom declined to be quoted for this story -- reported dissatisfaction with Go Loan, losing deals at the last minute or missing escrow closing dates, others have been pleased with their experiences.

“It’s amazing how simple the process is,” said Chiman Kotecha, a real estate broker specializing in residential sales in Diamond Bar. Although Kotecha has only financed one deal with Go Loan, “it was probably the easiest transaction I’ve ever had.”

Independent real estate broker Mary Kay McElmeel made $3,300 without much effort on her first transaction, a refinance with Go Loan. McElmeel said she hopes to move 100% of her business to the company, even though it means breaking ties with the traditional lender she’s been referring clients to for years.

“I used to refer all my loans out, but nothing was coming back to me,” she said. “I’ve really been missing the boat.”

So what will become of the traditional mortgage broker? As with other businesses changed by the Internet, it’s too early to tell.

“I think in five years it will be hard to differentiate a traditional mortgage broker from a Realtor,” said Richard Wohl, chief executive of IndyMac Mortgage Bank. Instead, he said, there will be “home loan specialists who can do both.”

While agent-assisted loan origination will capture some share of the mortgage banking business, high-volume real estate professionals may not want to be bothered with loan origination, focusing instead on selling homes.

“My agents want to stay out of the loan business,” said Randy Sprout, broker/owner of Century 21 Hollywood. “We don’t need to nickel and dime our clients.”

And then there are always the hard-to-approve clients who require heavy hand-holding, such as those with a bankruptcy or inconsistent income. Many believe that only an experienced broker who can shop extensively for loans in the marketplace will be able to assist those buyers.

“We will still need those guys,” Madera said. “They can do some things that we can’t.”

Allison B. Cohen can be reached at a.cohen@ix.netcom.com.