Riding The Refi Wave | Loan blitz means short-term profits, long-term relationships
With the economy in the doldrums, the market for refinancing home loans has been red hot. And although it has begun to cool very recently, Central Massachusetts bankers say the trend offers them the opportunity to boost income and convince customers that all their banking needs can be met locally.
But the refinance boom isn’t a gimme for local banks, however.
“When rates are this low, it isn’t prudent to build a loan portfolio out of 4-percent mortgages,” said Matt Sosik, president and CEO of Oxford-based Hometown Bank. “If rates rose dramatically in the future, those loans could really hurt a bank if they were all sitting on its books.”
That’s a different circumstance for community banks, which make money by collecting interest for the life of the loans they make.
As a result, banks are selling nearly all of their refinance loans to government-sponsored enterprises such as Fannie Mae and Freddie Mac, while retaining the right to service those loans so that customers still deal with the local bank, Sosik said.
Simply by doing a large amount of refinance business, community banks can provide a jolt to current income.
For Hometown Bank, 2010 will probably be the biggest year it’s had for refis since the early 2000s.
The same is true for Natick-based Middlesex Savings Bank, said Jon Auger, senior vice president.
“Volume is enormous. The last time it was like this was in 2003, and there are fewer lenders out there today,” Auger said.
But banks must be careful, Auger said.
“There’s going to be folks out there who took on very high loan-to-value mortgages, and the property lost value. If it’s a new loan to the bank, we can’t really take on an upside-down mortgage,” he said.
Another encouraging aspect of the hot refi market is the fact that customers are approaching their loans in a way that’s better for themselves and their banks, Auger said.
“A big driver right now is the low rates, so a lot of people are shortening up the term, maybe the payment is staying the same or even going up, but people are starting to think about, ‘Let’s get rid of this mortgage when the kids get to college,’ ” he said.
And because there are fewer mortgage brokers in the market these days, community banks are seeing an opportunity.
“It’s maintaining a relationship,” said Paul Scully, president and CEO of Country Bank for Savings in Ware. “The desire is not to just have one piece of your finances, it’s to have all those pieces together.”
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