Will the housing market surge help local banks?
Photos/Edd Cote
Thomas Dufault, vice president for mortgage lending at North Middlesex Savings Bank in Ayer
Thomas Dufault works with Mounzer Aylouche, relationship manager at the Massachusetts Housing Finance Agency
Seven years ago, the words dominating the Massachusetts housing market news were “crash” and “plummet.” Then came years of phrases like “tepid growth” and “cautiously optimistic.” So, if you're wondering if the state's real estate market has now entered a different phase, look no further than the key word in the headline of a late-September press release from the Boston-based Warren Group, which collects data on real estate deals: “torrid.” As in, “Mass home sales maintain torrid pace.”
The state saw 6,284 single-family home sales in August, the most for that month since 2005. June, July and August sales all grew by double digits compared with last year's numbers.
For the mortgage departments of community banks in MetroWest, the question is how much of that growth they can take advantage of.
Thomas Dufault, vice president for mortgage lending at North Middlesex Savings Bank in Ayer, said the bank's mortgage business looks quite good this year, but that's partly just in contrast to a rough 2014. Since the dramatic drop in interest rates in late 2008, the bank had been getting by on refinance deals. But by 2014, after several years of rock-bottom rates, just about everyone who wanted a refi had gotten it.
“What happens is you run through your whole refinance business,” Dufault said.
Now, though, new sales have risen to take the place of refinance deals, he said.
Don Frost, senior vice president for residential lending at Hudson-based Avidia Bank, said 2015 has been a “really good year” so far.
“Demand has stayed fairly steady, driven mostly by purchases,” he said.
In addition to new sales, Frost said there's been more demand for home equity loans as real estate values have gone up, because many homeowners now have more equity to borrow against.
Local limitations
Nationally, community banks have remained a relatively small part of the mortgage business even as the other players in the market have changed dramatically. Earlier this year, a report by the American Enterprise Institute found that large banks went from 61 percent of the mortgage-lending market in November 2012 to just 33 percent this February. Meanwhile, major mortgage companies, which are less regulated and more thinly financed than the banks, increased their share from 24 percent to 51 percent. Other banks, including local community institutions, consistently made up just more than 10 percent of the market, while credit unions held less than 5 percent.
David W. Stead, a real estate broker with RE/MAX Advantage I in Worcester, said he does some business with local banks and credit unions, but they're not always able to handle his clients' specific needs. He said he often directs home buyers to one of the larger mortgage companies because they have staff specifically focused on niche government programs. That helps when he's trying to assist someone like a first-time homebuyer with limited cash for a down payment, he said.
“They have access to a lot of different programs,” Stead said.
Local advantages
But Stead, who is also central region vice president for the Massachusetts Association of Realtors, said there are some clear advantages to working with local banks and credit unions, too. He said these small players are often able to process paperwork fast and provide good communication, particularly in contrast to the notoriously sluggish mortgage departments of some large banks.
Jon Auger, senior vice president at Natick-based Middlesex Savings Bank, said one major competitive advantage for community banks is the simple fact that they're part of the community.
“We serve a somewhat limited geography, and I think that gives us a lot more focus on it, on the businesses and the people in it,” he said. “They're going to find a difference in perspective and attitude … these are people we're going to see not just at work but in the community, in shopping markets and all that.”
Because local banks want “customers for life” who will come back for all their financial needs, not just people to sell mortgages to once, local banks have the incentive to build relationships, Auger said.
Dufault said the relationship-building aspect of community banking also means that staff at banks such as North Middlesex have the patience to shepherd a complex deal through the process. A company that sees mortgage origination as “the money-making venture of the minute” might not do the same.
“I will spend hours with customers, talking with them,” he said. “I've trained my sales staff to be the same way.”
Even if a transaction just doesn't make sense at the moment, Dufault said, the bank's staff will help a potential borrower figure out a financial roadmap so that they'll be able to get a mortgage six months or a year down the road.
“We have a unique relationship with our customers,” he said. “We hold their hands.”
In some cases, people who might not qualify for mortgage loans from other sources can get them through community banks. That's because, while most mortgages in the country are resold to the big, quasi-public companies Fannie Mae and Freddie Mac, most local banks keep some mortgages as part of their portfolios. Those loans don't have to conform to standard federal guidelines.
Frost said Avidia can often provide a portfolio loan mortgage for a customer who had a “credit hiccup” in the past, or who's buying a property that doesn't quite line up with federal guidelines.
“A lot of times you'll find people that don't fit into the Fannie Mae square box,” he said. “We don't look at just the [credit] score. We want to look at the whole credit profile.”
Dufault said about one in 10 mortgage deals he sees have some issue that keeps them from meeting federal guidelines. He said North Middlesex sometimes provides loans for foreclosed properties that need work to bring them up to the standards that Fannie Mae and Freddie Mac require. While there are government programs that might fill the same gap, it's often complicated and difficult to qualify for them. He said local banks can often provide similar financing without the hassle. Since they have relationships with local inspectors, they have an easier time making sure a building is a good risk and keeping track of how repairs are being made.
But, as the housing market improves, Dufault said regulators are easing the rules for mortgages, which means more competition even within the niche market for mortgages for distressed properties.
“Agencies are starting to allow things we were accepting before,” he said.
Dufault said that points to an irony of the local mortgage industry. When the market is slow and others are reluctant to make loans, local banks can carve out a niche. But when it's running on all cylinders, more competition shows up.
Competition a 'daily struggle'
Dufault said, when it comes to simple “plain vanilla” loans, like 30-year, fixed-rate mortgages for people with strong credit scores, “it's a daily struggle” to compete with larger institutions. He said it helps to do the trickier portfolio deals, as this can help forge relationships with real estate agents and others in the industry.
“Because we'll do the tough deal, they want to reward us with the plain-vanilla deal too,” he said.
Frost said relationships are the biggest part of marketing for Avidia's mortgage department too.
“Realtors are definitely someone you want to partner with, but past clients are always a good referral service because they're a walking testimonial,” he said.
He said the bank's staff also gets to know closing attorneys, accountants and financial planners, all of whom can help reach potential clients. At the same time, its marketing department tries to find customers directly. The bank places commercials with the Internet radio company Pandora, and it goes the traditional route, putting ads for local loan officers in community newspapers.
While local banks work to bring in more mortgage business, they also have to devote significant time and energy to dealing with changing regulations. This fall, local banks were scrambling to implement new federal disclosure rules that went into effect at the start of October.
“Like everybody, we have to stop, reengineer everything, change processes, change systems… It really takes a lot of focus away,” Auger said. “You're so busy dealing with that, it's hard to focus on your customers. But—I know this sounds like of old fashioned—but for us it is really about customer service.”
And when it comes to the basic business of providing mortgages to local people, Auger said Middlesex Savings is doing just fine.
“We've been very busy. We're fortunate,” he said. “It's certainly not the biggest year we've had. There are huge peaks and valleys in this business. It's not off the charts, but it's a lot busier than last year.” n
WBJ Web Partners
Most Recent
Most Recent
0 Comments