— Furniture Today,
Expects program in place in 90 days

FORT LAUDERDALE, FLA. — City Furniture is nearing the testing stage for its proposal to finance home furnishings purchases through home mortgages.

Within 90 days, the Top 100 company expects to have such a program in place through at least one mortgage lender that it wouldn’t identify.

In addition, next month it expects to furnish model homes through its new Academy of Design division and will use the exposure as a springboard to mortgage tie-ins for furniture purchases.

Keith Koenig, president of the 21-store, Fort Lauderdale-based City, said he is talking with several lenders about ways to make a “furniture upgrade option” part of the home loan process. The easiest route — and one many mortgage lenders are already offering for various types of purchases — is to provide a personal equity line, a form of home equity or second mortgage, attached to a first mortgage approval. 

This line would typically be for 10% of the value of a house. On a conventional loan covering 80% of the home price, for example, the mortgage essentially would go to 90% of the price for homebuyers with qualifying credit scores.

“Essentially, (the lender) sends the homebuyer a stack of checks they can use to buy whatever they want to,” Koenig said. “What we want to do is tie that more closely to furniture through marketing. I’m planning to provide the incentive of either a free or discounted Academy of Design package.”

City Furniture launched its Dianne Davant Academy of Design program late last year in its Wellington, Fla., store, with plans to take it to all full-line City stores within a year. (The company also operates Ashley Furniture HomeStores, usually located near City units).

Through the program, City provides interior designer service packages — for a fee of  $295, $495 or $695 — that include in-home designer consultations, shopping assistance and other services.

Beyond the personal equity line route, Koenig said he is talking to lenders about a debit card with a City connection that mortgage companies would give homebuyers to buy furniture. In that case, the purchases would be added to the consumer’s first mortgage.

Separately, Koenig is talking with a few Florida homebuilders about furnishing models through its Academy of Design service in a move he hopes will lead to mortgages with a furniture upgrade option.

Interior designers usually help furnish model homes, he said, and the furniture looks great but can be pricey. Designers “can’t buy container loads from around the world like we can … so the total cost is expensive in relation to the home,” Koenig said.

City is proposing to furnish models of one-bedroom to three-bedroom condos for about $10,000 to $15,000. Built into the cost of furnishing the models will be free Academy of Design packages for buyers of the homes in these developments, he added.

Koenig said that for condos that typically sell in the $300,000 range, the program will be very appealing, adding that builders he has approached like the idea.

That’s a far cry from a year and a half ago, when the housing market was booming and “they wouldn’t have anything to do with us,” he said.

“Everything was selling out,” he said. “But now the market has cooled. Everybody is looking for every opportunity to (promote).”

He said he hopes to have a deal with a builder done by mid-May.

City also is waiting to hear from the University of Florida on a proposed research project examining the furniture upgrade mortgage option.

The retailer plans to fund the project.

Bart Weitz, executive director of the university’s Miller Center for Retailing Education and Research, said he plans to produce a white paper that takes a look at the feasibility of offering these extended mortgages.

One part of the project would be a national survey of consumers to determine how appealing they would find the feature. Another part would focus on lenders and weigh the economic appeal for them.

“Our thought was, first of all, to talk to mortgage lenders about it and then develop a model that indicates the financial attractiveness … under various kinds of assumptions,” Weitz said.

In addition to studying the added fee income for lenders, the project would also look at potential effects on profitability, assuming increases in interest rates or default rates.

It also will look into issues surrounding the mortgage industry’s practice of packaging and reselling loan portfolios as securitized instruments. Mortgages with an upgrade option would have a greater ratio of principal to down payment and that could affect the repackagings. Weitz said there might also be some concerns about repackaging loans that include movable furniture as part of the security for the mortgage.

“There are a variety of mechanisms for dealing with that, but this is the sort of issue that needs to be explored,” he said.

Weitz estimated the research would take about three months.

At this month’s High Point furniture market, Furniture/ Today will host a meeting of key industry executives and financial representatives, who will  serve as a steering committee and sounding board for Koenig’s furniture upgrade initiative.

In addition to Koenig, furniture industry executives expected to attend include Jeff Child, R.C. Willey, Salt Lake City; Clarence Smith, Havertys, Atlanta; Peter Weitzner, Rooms To Go, Seffner, Fla.; John Disa, Wickes Furniture, Wheeling, Ill.; Hershel Alpert, Alperts, Seekonk, Mass.; Bob Price, JCPenney, Plano, Texas; and Ron Wanek, Ashley.

Among the financial institutions to be represented are Bank of America, Wachovia, Citi Financial, Wells Fargo and GE Financial.