Costco Presents Mortgage Lending the Way It Is Supposed to Be

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Editor’s Comment: 

I have said the same thing dozens of times — with 7,000 community banks, savings banks and credit unions, the whole argument about Too Big To Fail falls flat on it’s face. The entire myth about large uncontrollable banks having the only capacity to make or aggregate loans or even grant huge loans to huge corporations and government entities is pure bull-crap.  

Costco has seen the light and Walmart is already fiddling with the concept of being the switchboard for lending institutions to communicate with prospective buyers and with each other. The result is personal service and clearer terms. The road is clear — the smart money is on the Costco and Walmart efforts. They are trusted, they are not trying to bamboozle borrowers and they are policing their lenders.

With the power of Costco and others, the pressure to clear up the colossal corruption of our title system will be impossible to resist. Eventually these giants will come up with the right questions and demand the right answers in or out of court. Unless Costco enters into a collusive arrangement with title companies and the large banks and servicers, their lenders will insist on absolute proof — not verbal assurances — that the title chain is intact. The ultimate result is that the banks, servicers and title companies will be required to retreat from their fraudulent, ruinous game.

The American Homeowners Cooperative and many other organisations will seek alliances with Costco and local lenders to provide the same service. Good going, Costco!

Now on sale at Costco: Mortgages

By Les Christie @CNNMoney

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 (COST, Fortune 500) 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 (FDX, Fortune 500) 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.

It’s safe to sell your home again

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.

Mortgage payments at lowest level in decades

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.

Tags: borrower, Costco, Costco auto loans, Costco mortgage, Costco student loans, First Choice Bank, Gumbinger, home loan, LOAN MODIFICATION, modification, mortgages
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