Franchise owners of The Buyer's Agent national exclusive buyer brokerage franchise have purchased a mortgage company through which they plan to funnel their clients' financing, offering discounts that not only will give their own clients a break, but may attract buyers from other real estate companies.

Franchisees bought SouthMor Mortgage Corp. from its founder, Tom Hathaway, and legally changed the company into a mortgage "cooperative." Hathaway also is founder of The Buyer's Agent franchise. Terms of the agreement were not disclosed.

According to corporate statements, it is the intent of TBA brokers to offer loans to their own clients at rates below local and Internet lender rates - anywhere from a quarter to a half a percent - with no origination fees and limited lender fees.

Marketed almost as a loss leader to bring business through the door, loan packages to TBA clients are intended to undercut the market so significantly that franchisees will make no profits on those loans.

SouthMor also will be marketed to other agents in the community, however, with the company offering a low rate but collecting a 1 percent origination fee on the loan value. That 1 percent will go into a revenue pool that will pay dividends to the franchisee/owners.

SouthMor also will offer more traditional loan packages.

Hathaway said he sold the mortgage company to the franchisees to raise capital to obtain Fannie and Freddie approval as a direct seller servicer of loans to the GSEs.

Hathaway said the loan company is now legally structured as a cooperative and that when the consumer enters into an agency agreement with a TBA agent, the client becomes a member of the cooperative. That membership enables the client to receive the discounted loan. The buyer remains a member of the cooperative as long as he owns the home. Eventually SouthMor will add other financial tools, including home equity loans, credit cards and personal loans, Hathaway said.

According to TBA, a one-half percent mortgage rate difference on a $250,000 loan, amortized over 30 years, would represent an $85 difference in monthly payments. In seven years that would equal $7,100 in savings. Over 30 years the savings would equal more than $30,000.

Savings on lender fees would add another $1,000 to that total, and savings on loan origination fees would be about $3,500.

Hathaway believes the "mortgage cooperative" is a new concept in mortgage lending. "Many have asked me why I want to forego the mortgage profits," he said. "The answer is that it is a great way to increase the saving we provide our home buying clients, and it adds to the overall savings that we advertise, which ultimately means we will (attract) thousands more buyers.

"The marketing of savings is one of our best advantages over the competition. If we did not work to save our clients money like we do, we would be no different than the others who call themselves buyer representatives."

Published: May 2, 2000

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