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Special Reports
Biweekly Mortgages
Making Biweekly Loans 'By Design'
By Amilda Dymi
RICHMOND, VA-Michael White, president of Bacon Mortgage, Richmond, Va., may be
one of the few brokers whose appreciation for the biweekly mortgage product led to the establishment of a specialized
for-profit corporation.
"By Design" eliminates what some brokers consider a drawback to the
product: service fees brokers are expected to pay to companies that collect and pay the biweekly mortgage to the
lender as a service to the broker. To Mr. White, the drawback is that "now almost all the lenders are offering
it, so competition is getting a little harder."
Nonetheless, he finds the product gives brokers a competitive edge towards other
brokers who may provide the same rates, closing costs and other services, but do not provide the biweekly option.
"Our marketing targets customers exclusively for the biweekly service, then
we find out if they need a lower rate on the mortgage and wrap it all up into one."
Initially he hired a loan officer who liked the product and worked through a third-party
servicer. Eventually the broker, loan officer and third-party servicer agreed to start up a corporation separately
from the broker to operate related funds and profit. Operations are separated in compliance with Virginia state
corporate guidelines to financial institutions, which do not allow brokers to profit from third-party servicers.
"I pay a discounted fee to set the service up and then charge a higher fee
to compensate the difference," he says. "This way we do not have to mingle the files, charge enough as
an upfront fee and save my clients money over the long run."
The fee difference, or profit that compensates for related expenses, is anywhere
from $300 to $400. The average flat fee is at $595 regardless of loan amount.
"I really don't make a ton of money off that. Most of the money I make is
off the mortgage," he explains. "I offer the mortgage first and the more I can offer them the more they
are going to chose me. It's just icing on the cake."
"By Design" is challenged by the fact that a multiplying number of lenders
are offering the biweekly payment option to their customers.
"It was a hot thing a year ago when nobody really knew about it," notes
Mr. White. "Now most of the lenders are hip on it, and they charge a fee for it, too, which is another way
to increase their bottom line. The competition is a little heavier now."
The company response to lender competition is rather traditional.
"It all is up to what kind of relationship you have with borrowers, because
I'm not offering them anything the lenders don't," he says. "The way for me to gain from the biweekly
is by selling the whole package. You get it all done from the start when customers make their first mortgage payment
and then the biweekly will kick in."
"By Design" retrieves the payment directly from the customers' checking
account and pays it to the lender - a convenience customers appreciate as much as the simplicity of the process
and savings in the long term.
"It does attract some borrowers and a lot more people are catching on to
the idea of how the product really saves you interest over the lifetime of the loan," he says. "It definitely
benefits the client."
Long-term benefits depend on the size and other loan characteristics besides the
biweekly payment feature. Most importantly, under the program customers "can really knock off some interest
payments, just by breaking down the payment and ultimately save a few thousands dollars in interest for the life
of a 30-year loan."
As to how the product is performing in the current market environment and how
increasing interest rates may affect the demand, Mr. White does not expect any major changes.
"It is the type of product that all the banks are offering now, which also
means that I'm not selling as much as I used to, but [I do provide it] as an added feature [if] the clients like
it," he says.
Little has changed since he started the company two years ago.
"There are not a lot of new options out there, a lot of the old stuff, and
the biweekly is just one of them, can't say it's the hottest thing out there," Mr. White says. "And it
is not so affected by rate variations as much as by client needs. There will always be people who want to pay their
loan off as quickly as possible."
Typically such clients are those who can afford to pay more, or the more affluent
type of borrower, while low- to moderate-income people tend to stay away from it. Borrowers could certainly do
it by themselves, he notes, but it is more convenient to get it closed with the loan.
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