Citizens Bank adapts to a market that continues to defy predictions

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Tight housing inventory and some unexpected behaviors from potential buyers and sellers of homes have prompted Citizens Bank to make changes to its services and mortgage-loan products.

Sonu Mittal, head of the bank's retail mortgage division, said in an interview with National Mortgage News that housing affordability concerns — the product of insufficient new-home construction over the last five to 10 years combined with uncertainty about the direction of interest rates — have disrupted some demographic shifts that were widely predicted to be driving activity at this point.

For one, market observers had long thought the current market would be characterized by excess supply of larger homes and increasing demand for smaller ones as retiring baby boomers downsized. That shift has yet to happen, though, as older homeowners sit on mortgages they refinanced at historically low rates, and prices of homes they might have otherwise wanted to buy remain relatively unattractive.

"So we're not seeing that many baby boomers downsizing, which is creating a supply shortage of those [larger] homes," Mittal said.

The inventory shortage has created significant competition among mortgage lenders, prompting the banks to develop products and services to meet specific borrowers' needs. For example, one program is aimed at new doctors coming out of residencies and trying to balance their student debt with purchasing a home. Other popular programs, Mittal said, help borrowers with closing costs and assist them with down payments.

A new service Citizens Bank launched in February called Your Home Rewards enables customers and noncustomers alike to search for homes in specific areas, giving them free access to the multiple listing service used by Realtors. It also provides information about the local crime rate, schools and other factors important to homebuyers, and points them to local real estate agents.

"If the customer buys or sells a house through that program, he or she can get a cash rebate," Mittal said.

The National Association of Realtors has found that 37% of homebuyers today are millennials, higher than expected and amplifying the shortage. In metro areas they're snapping up starter homes in the form of condominiums and cooperatives, Mittal said, or they're moving out to the exurbs where they can buy new houses with more amenities for a similar price. Others are taking advantage of construction-to-permanent loans that reduce fees by combining construction financing with a permanent mortgage, enabling them to build new homes or renovate and modernize existing ones in established housing markets.

As part of its construction-to-permanent program, Citizens Bank aims to work closely with customers from start to finish. In the case of building a new home, the bank seeks to play an integral role, monitoring the builder's progress and communicating with the home buyer through the process, a major benefit to first-time buyers.

"It's important for us as the lender to work with the customer and make sure we're able to help them through the home-buying experience," Mittal said. He added that extends to facilitating the purchase of co-ops and condos, where boards and associations often will have unique rules and requirements in terms of required documentation and what is and isn't allowed in the building.

Mittal said growth has been strong across its relatively diverse mortgage footprint, and that's especially been the case in large metro areas such as New York, Boston and Washington, in part because Citizens Bank has relationships with builders there. He noted attending a recent National Association of Home Builders conference where buzz among attendees centered on their inability to keep up with demand, both in terms of building new homes and restoring older ones.

"Some markets have been impacted by big companies making changes, such as Amazon moving its headquarters to Crystal City, in Northern Virginia, and Google building [a $600 million data center in Montgomery County] Tennessee," Mittal said.

Mortgage rates dipping nearly half a percentage point between year-end 2018 and the end of March created a "mini refi boom," Mittal said, adding many of those customers took out cash after their homes had appreciated significantly in value.

"Baby boomers and other homeowners are sitting on historically low rates, in the 3.5% range, but if they need funds to pay for their kids' college, or make a major purchase, or to consolidate debt, they're willing to give up that lower rate," Mittal said.

Headquartered in Providence, R.I., Citizens Bank runs its mortgage-related services through brick-and-mortar bank branches in 12 states mostly in the Northeastern and nearby Midwestern states. It also has mortgage loan offices in 13 additional states.

The bank's retail mortgage division manages roughly $7 billion in mortgage assets it originated. Another $4 billion is originated by a network of third-party correspondent and broker channels, and the bank manages $11 billion of mortgage-backed securities.

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Housing market Housing inventory Purchase Mortgage rates Housing affordability Citizens Bank NAR NAHB