In Slower Housing Market, Mortgage Lenders Turn to Incentives to Woo Clients

Get a mortgage from another lender and we will pay you $250.

Such is the latest marketing twist from Bank of America Corp. As competition for home loans increases, 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.

Why is mortgage lender after mortgage lender beginning to emphasize price, service and stronger customer relationships? As well as such blatant incentives? It’s all a response to 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 mortgage rates made it less attractive for borrowers to refinance.

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, reported The Real Estate Journal.

More examples of mortgage incentives: 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
• Mortgages with 40-year terms.

But the flow of new products has slowed. Bank regulators have raised questions about the risks some nontraditional mortgages may pose to borrowers and lenders.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.