By Les Christie
April 26, 2012
photo: TIM BOYLE/GETTY IMAGES |
NEW YORK (CNNMoney) -- Not only can Costco shoppers find bulk-packs
of chicken wings, 24-rolls of toilet paper and large-screen TVs at a
discount, they can now land themselves a mortgage.
After a year of testing, Costco is rolling out a full-service mortgage lending program on its website
in partnership with First Choice Bank, a New Jersey-based community
bank, and 10 other lenders.
Costco's partners have issued more than 10,000 mortgages to members
under the program. But Lauren Kutschka, Costco's manager of financial
services, expects that number to swell as the warehouse retailer markets
the service more aggressively to millions of members in its stores and
in its weekly publication Connection.
"I went in to buy
some bottled water, big bags of chips, cereal and some Nutri-Grain bars
that I eat on my route," said Ray Sheets, a FedEx courier from Canton, Ga. "I saw a home loan brochure on my way out and picked it up."
Sheets
went onto Costco's site, put in his information and quickly accessed
offers from four lenders. The rates, closing costs and terms were listed
up front. And the closing costs -- of about $2,500 -- were about a
third of what he would have had to pay through other lenders, he said.
Within
a few weeks, Sheets refinanced his $170,000, 15-year fixed mortgage
carrying a 4.25% rate into a 30-year loan with a rate of 4%. The move
lowered his monthly payment by nearly $500 to $811 a month.
Mortgages are just one of several financial products available to
Costco's members. The warehouse club also offers health and auto
insurance, as well as stock brokerage services, said Kutschka.
Up next: Auto loans and student loans.
"We've
always known that our members wanted more financial services," she
said. "Right now, we offer recreational vehicle and boat loans and we're
going to add auto loans to that. We're also looking to offer student
loans."
Costco had started offering mortgages a couple of years
ago but the service provider it was using didn't share enough details
about how it was dealing with Costco's members, said Kutschka. So Costco
started over from scratch, partnering with First Choice Bank to build a
new mortgage lending portal.
Much
like LendingTree, the site gathers quotes from various lenders.
However, there is one key difference. Under the Costco program, the
borrower's identity is revealed only after they officially select the
lender, said John Alexander, business development director at First
Choice.
With many other lead-generation sites, the consumer fills
out an application and any lender can make an offer and begin sending
marketing communications to the applicant without restrictions.
Costco
members will still need to do their homework and compare offers,
though, said Keith Gumbinger of mortgage information company HSH.com.
Even after a year of testing, Costco's service is still new.
First
Choice said it will police the other lenders to ensure they comply with
Costco's policies, which include giving accurate rates and terms and
following up quickly on questions and requests. The technology enables
Costco to monitor individual applications and make sure they are handled
properly and expeditiously.
Costco takes no profit on the lending itself, but it does get paid to market the service.
In
Sheets' case, his lender, Bank of the Internet, sent a representative
-- an attorney -- to his home to close on the loan, he said. She
answered all his questions and explained all of the legal terms in the
contract.
"There were no surprises," he said.
Gumbinger said the service may prove better for people like Sheets, who are refinancing than those who are purchasing homes.
"The
mortgage origination process is still a hands-on, face-to-face
process," he said. "It involves a comfort level and you don't get that
with an online service."
That may be true in the initial
stages of the borrowing process, but once a Costco borrower has chosen a
lender the level of service steps up, as Ray Sheets's lender did for
him.
Given the size of Costco's footprint and its ability to
squeeze great deals out of vendors, Costco members should at least
"include the site in their search plan," said Gumbinger.
Source: CNNMoney
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