Think of Charles Schwab and the first thing that comes to mind is investments, or perhaps retirement planning. But mortgages?
That’s precisely what the financial services company has been offering for about the past year. Last April, it launched the Charles Schwab Bank, which offers consumers an array of mortgage and home equity products.
Schwab burst into the multitrillion-dollar mortgage market amidst the hottest housing boom on record. The company is using price guarantees on home loan packages as a way to distinguish itself from the rest of the mortgage lending pack.
Along with Schwab’s mortgage debut came three guarantees, including one that pays consumers $500 if the company can’t beat another lender’s overall mortgage price by $100. The other two guarantees promise a specific closing day and a same-day lending decision.
The guarantees are getting consumers’ attention. Most days, the bank gets at least a dozen calls from consumers interested in the best-price guarantee, said Richard Musci, VP loan products officer with Charles Schwab Bank.
“It just resonates very, very well with customers,” Musci said.
That was clear from the number of phone calls the bank received after “Good Morning America” aired a piece on the best-price guarantee last year. That day, more than 4,000 people called in asking about the guarantee, he said.
Musci acknowledges Schwab isn’t the lowest-cost lender in the marketplace. Although the bank often can beat other lenders’ prices, sometimes it can’t, Musci said. So far, it has paid out more than $100,000 to consumers for being unable to beat another lender’s overall mortgage price.
That’s a relatively small fraction of the total number of consumers drawn to the bank because of the guarantee, though Musci did not have specific numbers. Musci said the bank doesn’t mind paying out that money because it views the guarantee as more than simply a way to bring in consumers. It’s also intended to educate consumers no matter which lender they end up choosing, he said.
“Consumers are confused about the mortgage transaction and the associated costs they’re paying for that,” Musci said.
When they come to Schwab inquiring about the guarantee, employees have the opportunity to explain that mortgage costs are about more than just interest rates, Musci said. Consumers need to look at the overall price of a mortgage, not simply the rate, in order to compare different offers.
In fact, the guarantee covers the mortgage’s overall price, including closing costs. To be eligible for the guarantee, consumers must provide a complete, system-generated Good Faith Estimate from another lender. If Schwab cannot beat that lender’s total loan costs by $100, the consumer receives $500, or $750 for properties within California. The higher price for California properties is simply a recognition of the higher cost of properties overall within that state, Musci said.
And the mere act of explaining all the costs – line by line – to consumers has also brought benefits for Schwab. He said many truly appreciate learning more about mortgage costs.
“We’ve had a number of instances where we couldn’t beat their rate, but they still went with us,” Musci said.
Musci said he likes to view the guarantee as “another tool that consumers can use to become better educated.” They may take that newfound knowledge and use it as leverage when negotiating with another lender, he said.
Musci said he’s heard of consumers thanking Schwab for the information because they took it to another lender and negotiated a better deal.
“It’s all about knowledge and information,” Musci said.
It’s also about getting Schwab’s name out there in the mortgage field. Schwab launched the guarantees the same day as its mortgage products as a way to bring attention to itself, a new player in the already crowded mortgage field.
The bank’s closing date guarantee assures consumers that Schwab will meet their requested closing date or the bank will reduce the interest rate by 1/8 of one percent for the life of the loan. The same day decision guarantee will pay consumers $250 if consumers who phone in an application for a loan don’t receive a decision the same day.
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