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PCBB Banc Investment Daily March 16, 2015
Banc Investment Daily
March 16, 2015

Scoring With Mortage Loans

Hockey great Wayne Gretzky had an interesting take on how to master his particular craft - don't go where the puck is on the ice, but instead to where the puck is going to be. Gretzky, a first ballot Hall-of-Famer, saw the game unfold before him seconds before his opponents did and that vision helped catapult him to the short list of not only greatest hockey players ever, but greatest athletes regardless of the sport. "A good hockey player plays where the puck is, but a great hockey player plays where the puck is going to be." said Gretzky.
This is a great lesson for community banks too, who really need to go where the profit potential is going to be in the future, even more than going where it is now.
Let's look at mortgage loans. Recent data shows that 87% of US households qualify for mortgage down payment assistance. At first blush, most consumers assume this means going through an HFA or a non-profit organization. In actuality, the first stop a consumer should make is at his or her local bank and local bank leaders should be ready for that request. After all, 87% of households translate into 68mm Americans eligible for mortgage down payment programs. Yet, only 25% of all mortgage originations come from smaller banks, according to the Fed (the figure includes credit unions and community banks). There are lots of reasons for this, but perhaps there is more opportunity for your bank as well. The Fed has some ideas to help, based on a 2012 study of small banks and mortgage originations.
Here are some tips to crack the market: Look to home refinancing and home improvement loans. The Fed reports that US mortgage consumers prefer community and independent banks for "one-off" home loans, like refinancing and home equity loans. This doesn't mean you should ignore direct mortgage loans, but knowing you may have the inside track to a customer base that wants to work with your bank is important.
Next, aim some of your marketing efforts toward those who qualify for loan mortgage assistance. The Fed reports smaller banks already offer a larger share of their total home-purchase loan portfolio to low or moderate-income individuals or to borrowers in low or moderate-income neighborhoods. This lending is the focus of CRA requirements after all. Local banks shouldn't stop with just meeting CRA requirements, but might also consider making an effort to let customers know your bank is the logical first and last stop for mortgage loan help.
Another valid marketing target is the younger homeowner. A good chunk of government assistance cash for home mortgage loans is being steered toward younger, first-time buyers. Money and programs abound for this group to help with down payments and other subsidies.
Even if mortgage lending isn't your cup of tea, it makes sense to think about the future of your business. Bankers usually do that in annual strategic meetings, but things are changing so fast we would say management should focus more on semiannual activity to refresh ideas.
Who knows, like the Great Gretzky, you could be the next banker to anticipate where the opportunity lies. Then meeting your bank's goals for profitability and portfolio growth should be far easier to attain.