By: Melissa Klein
MAY 22, 2000 (ACCOUNTING TODAY) - MELVILLE, NY - Hoping to cash in on their role as their clients' most trusted advisor, a Long Island based mortgage company has joined the fray to court CPAs.

CPAs and other financial professionals are the targets of a program that was developed by Melville, N.Y.-based Mortgage Warehouse through which practitioners receive a commission for helping clients obtain a mortgage.

It's a growing trend among financial services firms. Rather than going after the retail market directly, mutual fund, insurance, investment advisory and other firms are instead wooing their advisors, who already have the clients' trust and a picture of their financial situation.

Likewise, the premise behind the Mortgage Associates program is that CPAs are perfectly positioned to help their clients obtain mortgages, according to Steven Connolly, a CPA and the director of business development for the program.

In addition to the relationship, "CPAs already have the clients' tax returns and most of the supporting documents that are needed to get a mortgage," Connolly said. In many cases, clients are already asking their accountants for help. "This way, the CPA gets compensated for work they may be doing already," he explained.

"CPAs are a much better choice for the consumer than going to a loan officer," he added. Since they have an ongoing relationship with the client, CPAs are more likely to look after the client's best interests, whereas, "the client's relationship with a loan officer ends as soon as the loan is closed."

While they don't need a license to originate loans, under banking industry rules a CPA must become an employee of the mortgage company and agree to provide a minimum number of services under the Real Estate Settlement Procedures Act in order to be paid, Connolly explained.

Since regulations require only that the mortgage company disclose the gross amount made on the loan, Connolly said that it falls on the CPA to tell their client that they're getting paid for the service. He also warned that CPAs shouldn't offer the service to attest clients, since state rules regarding CPAs' acceptance of commissions either don't allow it or are "a gray area." Accountants who are registered with a broker/dealer firm can participate, as long as they don't have an agreement to offer mortgage services through the broker and they disclose their registration to Mortgage Warehouse.

The CPA gets paid a percentage of the loan value, up to 125 percent, by Mortgage Warehouse. The average commission is about $1,500 per loan, Connolly said. Since the accountant gets paid based on the value of the loan, there's no incentive to jack up prices to tack on fees, according to Connelly.

Mortgage Warehouse currently operates in New York, New Jersey, Connecticut (for non-CPAs), Colorado, Michigan and Ohio. Connolly said that the firm plans to expand the program into Massachusetts, Florida and California.

The back office is handled by a Mortgage Warehouse loan specialist. The CPA helps the client fill out the loan application, collects the supporting documents and sends them to the loan specialist, who returns the loan package to the CPA for review with the client. The accountant serves primarily as a liaison between the mortgage company and the client.

"Most CPAs don't want to become mortgage experts, because it's not something they do everyday," Connolly said.

The service is a natural fit, since clients are asking for it anyway, according to CPA Ralph Rosenbaum, a sole practitioner in Matawan, N.J. "I was already doing the work, without getting paid," he said.

Rosenbaum, who has closed two mortgages since joining Mortgage Associates in September, said that the program makes the process easy. "They have got a good support staff. I get the application filled out and get the papers, and they handle the nitty gritty," he said, adding, "Their rates are just as good as anywhere else."

The program's biggest attraction, according to another CPA, may be that it allows practitioners to expand their services without any overhead expense.

In order to compete with the large one-stop shops, Jim Preston, president of James F Preston CPA in Cutchogue, N.Y., has been expanding his offerings to keep his clients from going elsewhere.

Preston, who was already offering other financial services through a broker/dealer, heard about the program at a local CPA society meeting about a year ago, and decided to try it on a small scale.

So far, he has helped eight clients get loans through the program, with good results.

"I'm extremely comfortable with it, seeing how my clients have been receptive to it," he said. In one case, Preston was able to help a couple who wanted to refinance a loan rate that was 3 percent lower than another offer they had been considering. Preston estimates that he could easily make more than $30,000 ifjust 5 percent of his existing 500 clients refinance this year.

For Battle Creek, Mich.-based CPA Chris Micklatcher, the ability to help his clients borrow against their home equity is crucial. As a tax attorney for Alternative Tax Solutions, Micklatcher's clients are often cash poor and owe money to the Internal Revenue Service. He applies the commission that he receives from Mortgage Associates to his clients' bill.

"My competitors are national firms negotiating with the IRS," he said. "This way, I can offer my clients the same service. It's also easier to work with the IRS, because I can help my clients obtain a bank loan, and they don't have to pay me with cash out of their pocket."

MickcIatcher, who signed on with the program six months ago, has closed one loan, and has three more in the pipeline.