Home lenders are sweetening the pot

Forget the toaster. Buying a house could help pay for your next vacation. Or at least a gym membership, or free Internet service for a year, or even a shopping spree of a lifetime.

Thanks to a cooling housing market, banks are throwing sizzle into incentives these days, shaking up the typical humdrum offers of point buy-downs or creative loan programs.

The market is so competitive, in fact, that some lenders are paying just to get a chance at new business: Bank of America and LendingTree.com, for example, are giving loan applicants up to $500 if they can’t beat another company’s offer.

“The market for lending is very, very competitive — extremely competitive — right now,” said Dan Vessely, president of the Iowa Bankers Mortgage Corp. “Everyone is trying to find something unique to offer that will entice (customers). Just saying, ‘We have the lowest rates’ isn’t doing it anymore.”

Marketing incentives may be nothing new to the banking industry, but analysts said a slowing loan volume has forced lenders to sweeten the deals even more than usual. Mortgage originations fell nearly 30 percent in the fourth quarter compared with the same period last year, according to the Mortgage Bankers Association.

Wells Fargo & Co., the nation’s second-largest mortgage lender, recently tried to win back former customers by offering two round-trip plane tickets to London, Hawaii or Mexico if they opened a home equity account by the end of February.

Ben Hildebrandt, a spokesman with the Iowa Bankers Association, said plane tickets seem to be a popular perk for lenders. So far this month, he has received at least two calls from bankers specifically asking if the trade association has any partnerships with certain airlines to offer free tickets.

“The ‘wow’ products like that do come up occasionally when things are slower, and things are significantly slower now,” Hildebrandt said. “In a market like this, people aren’t really going to pay attention to a free tote bag or something. But a trip to London? Hey, maybe I’ll look at that.”

Some lenders have had success in housing downturns by teaming with other companies to offer special products, such as Countrywide’s recent partnership with Sprint and Earthlink. During that incentive period, which has since expired, customers who took out a mortgage of at least $200,000 were able to choose between 14 months of free Internet access with Earthlink and 20 months of free minutes (up to 500 a month) with Sprint.

Vessely said it’s telling that big businesses in the mortgage industry are using dramatic tools to attract business.

“It really shows how competitive things are,” he said. “Even Wells and Countrywide aren’t getting business through the normal channels right now.”

Splashy, one-time offers aren’t for everyone, though. Mike Helak, regional president for US Bank in Des Moines, said he prefers to look at incentives that offer a more long-term value for the customer, such as checking accounts that pay dividends.