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Sunday, May 26, 2024

Company Markets Mortgages As Financial Service of CPAs

To Mark Klein, a mortgage is just another financial tool. So when the former CPA saw a chance to provide mortgage lending services through accountants and financial planners, he formed a company to do just that. Since it was formed in 1992, Pacific Coast Lending has stuck to an unusual business model: marketing its mortgage products exclusively through CPAs and financial planners, who in turn, offer the company’s services to their clients when the need arises. The idea is to provide long term mortgage lending and consultation so that clients can adjust their mortgages as their financial and family needs change. “Today a mortgage is defined as one of the largest financial instruments people have in their life,” said Klein, founder and president of the Agoura Hills-based firm. “People refinance in California every three to five years. They have a significant equity buildup that they want to tap into. Our job is to make sure your mortgage is the most optimal at any given time.” Pacific Coast manages about $1 billion in mortgages, although some of that includes tracking the mortgages held by clients who have not used Pacific Coast as their lender, at least not yet. The company last year wrote $255 million in loans, down about 10 percent from the prior year. This year Klein expects loan originations to be down another 10 percent, but he points out that the rest of the industry is down an average of 40 percent or more. And while refinance lending has slowed to a crawl throughout the industry, Klein believes the pace of lending at Pacific Coast, where refinancing still accounts for 65 percent of the loans, is far more brisk thanks to the company’s business model. “We have high net worth individuals that want to leverage their money,” said David Gittelson, vice president of business development for Pacific Coast. “They want to buy their office building or they may have cash issues. They have kids going to college or there’s a divorce. There’s so many different reasons that someone may want to change their mortgage that a mortgage has become a financial product.” Change in rules Gittelson joined Pacific Coast in 2001 following a change in regulations that allowed CPAs to sell products such as insurance and stocks and gave Pacific Coast the ability to offer a revenue sharing program. CPAs who participate are paid anywhere from $1,500 to $5,000 depending on the size of the mortgage, a fee, they say, that helps them provide assistance to their own clients at no cost. “CPAs get paid by the hour. Here, rather than getting paid by the hour we’re instead sharing in the fees,” said Bill Wolf, partner in charge of tax and accounting services at White, Zuckerman, Warsavsky, Luna, Wolf & Hunt LLP. “So it’s really a savings to our clients. Most of the time they can find a loan and originate the loan with no points and therefore there’s no fees involved from the client’s point of view.” The program works this way: Using a program called Mortgage Coach, Pacific Coast works up a number of different scenarios for structuring a loan. The software provides a full breakdown of the costs over the life of the loan. The CPA or financial planner can then analyze the options with their clients based on their needs and make a selection, or the client can take the information and shop the loan elsewhere. Pacific Coast also follows up several times a year to make certain the loan continues to meet the client’s needs. “My clients get printouts of four different ways they can structure a loan and the tax implications and the client decides which makes the most sense to them,” said Wolf. “It’s something CPAs can do because they understand the numbers, so it’s a CPA-type analysis, but Pacific Coast does the computer printout and we share it with our clients.” What differentiates the program from, say, an alliance a real estate broker might have with a mortgage company is that the CPA or financial planners stay involved in the process, providing analysis and updates and, unlike other mortgage brokers, Pacific Coast’s staffing structure, which includes professional loan officers, underwriters and service representatives, are all paid salaries, not commissions. Refinance business Klein concedes that with such a staffing structure, Pacific Coast is not the least expensive lender around, but he calls his margin structure “reasonable.” Pacific Coast also handles commercial mortgages, new home and second home mortgages, income property and other lending, but its business, by virtue of its connection with CPA consulting services, will continue to be weighted toward refinance loans. That business is cyclical, and the current down cycle has taken a bite out of the company’s business. But Klein and Gittelson believe that the revenue sharing model will help them to continue to pick up clients, and when the market turns around they will reap the lion’s share of the stronger business cycle. “What happens is we’re picking up a larger share of a shrinking pie because of our revenue sharing model,” said Klein. “My company works almost like the real estate industry. Every hill goes to a valley, but every hill is bigger in the next cycle than the previous cycle and every valley is bigger than the previous valley. I think in the next cycle, when our business plan is fully implemented, we might do $1 billion a year in loans.”

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