ABA Banking Journal - August 2008 - (Page 24)
COVER STORY Filling gap, but carefully Troubles among subprime lenders, and other mortgage market woes, bring added market share to some traditional bank and savings institution home lenders. But while it’s summer, the living ain’t easy the T he mortgage applicant had an atypical proposal for the lender to consider, definitely not your do-it-blindfolded home loan. He was selling a home in San Francisco, and buying one in Sacramento. The catch was that, until he could sell the San Francisco home, the would-be borrower would be relying on his father-in-law, who had agreed to put up half the price of the Sacramento home until the applicant could repay him from the proceeds of the eventual sale of his existing home. Under most circumstances, this would be something of a challenge. But right now, it might have been classified in the “snowball’s chance” column. In the Sacramento market, mortgage brokers and other nonlender originators have left the business or pulled in their horns, leaving mortgage borrowers to face larger commercial banking and savings institutions that have grown conservative in a hurry. Some community banks, likewise, have tightened up. This might have left the applicant above with no viable alternative, but The Merchants National Bank of Sacramento had no qualms. “We portfolio all of our mortgage loans, so we can accept some of the minor difficulties that some borrowers have,” says James Pons, executive vice-president and chief credit officer at the $121.3 million-assets bank. In this case, Pons not only believed that the arrangement would work out, but knew the father-in-law. He okayed the deal. With the departure of some originators, and the reticence of some competitors growing, Pons says that “we’re benefiting.” The bank has seen its mortgage portfolio grow by about 20% through June of this year. While Merchants National makes its mortgages on Fannie/Freddie accepted forms, in case sale of the mortgage should be desirable, it portfolios everything. It can do this with the fixedrate loans that it sticks to because it structures them as shorter-term loans—seven or ten years, as a rule—amortizing over 30 years. “This gives us a chance to reprice the loans,” says Pons. “Generally, if the borrowers meet their obligations, we don’t call the loans. We just rewrite them.” Looking back on the subprime debacle, Pons says, “since about four years ago, we’ve been scratching our heads, asking, ‘Who’s buying all of this stuff?’” Changing times for home lenders Of course, Pons’ last question is a past-tense query now. We’ll explore more of what we saw in the course of a national round of calls in mid-July to bankers and thrift executives. But what we heard must be considered in context. Bank and savings bank mortgage lenders—indeed, real estate borrowers, home brokers, and many other players as well—have been dealing with an By Steve Cocheo, executive editor 24 AUGUST 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com
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