In mortgages, these banks zigged while many others zagged
Several banks have revved up efforts in mortgage lending, even as others have headed for the exits.
University Bancorp in Ann Arbor, Mich., Colony Bancorp in Fitzgerald, Ga., and KeyPoint Credit Union in Santa Clara, Calif., are among the lenders that are either buying mortgage operations or hiring personnel.
Efforts to build scale are taking place at a time when overall mortgage revenue is down, regulations are challenging and nonbank competition continues to heat up. Profit per loan was cut in half last year, to $367, according to the Mortgage Bankers Association.
Still, some banks believe there is opportunity, including the $267 million-asset University Bancorp.
The company recently bought certain assets and brought on 52 employees from Huron Valley Financial, a privately held mortgage bank. The deal gave University an entry point into wholesale and reverse mortgages.
“The last two months have been absolute records,” Stephen Lange Ranzini, University’s president and CEO, said in an interview. “We’ll probably close $100 million of loans this month for the first time ever.”
The company’s University Lending Group division, which operates nationwide, originated $875 million in mortgages last year. Powered by mortgage lending, the company projects that its overall profit will nearly triple in 2019 from a year earlier, to $6.4 million.
University could have made more loans if not for a housing shortage in its home market.
“We’ve given $60 million of preapprovals, but people can’t find houses,” Ranzini said.
The $1.3 billion-asset Colony Bancorp also became acquisitive in its effort to gain scale, agreeing last month to buy the mortgage lending business of Planters First Bank in Cordele, Ga.
The move should boost Colony’s annual mortgage origination volume beyond $200 million, T. Heath Fountain, the company’s president and CEO, said in a press release announcing the deal.
Efforts to reach Fountain for additional comment were unsuccessful.
The $1.3 billion-asset KeyPoint Credit Union hired Michele Murphy, a veteran Bay Area mortgage lender, to expand its home lending operations. KeyPoint, which originated $148 million in mortgages last year, wants Murphy to hire more lenders.
KeyPoint is encourage by continued low unemployment. At the same time, northern California’s housing inventory increased by double digits last year, and a number of highly qualified mortgage lenders have become available after their employers scaled back.
“Based on the conditions we’re seeing, the opportunity is still there,” said David Luu, KeyPoint’s chief credit officer. “We feel the real estate market is returning to normalcy.”
KeyPoint’s field of membership includes several prominent technology firms and organizations, along with a wide swath of central and southern California, so it has plenty of room to expand.
“Our goal is to expand beyond the local area,” Luu said. “We want to support our members wherever they are.”
Some of the banks that are bulking up have struggled to increase mortgage-related income as refinance activity has slowed.
At the $3.6 billion-asset Mercantile Bancorp, income from mortgage banking activities fell by 7% last year from a year earlier, to $4.1 million. However, the Grand Rapids, Mich., company has booked more loans in every quarter since it entered the business in May 2016. First-quarter mortgage revenue totaled $1.1 million, up 20% from a year earlier.
Mercantile, which hired three mortgage lenders in the first quarter, believes volume will continue to increase. Like University, the company warned in its quarterly filing with the Securities and Exchange Commission that it sees the “headwinds of an ongoing housing inventory shortage.”
Other looming factors could cause expanding lenders to rethink their strategies, with regulation and nonbank competition leading the charge.
“You have 3,000 federal and state origination and servicing requirements,” Jamie Dimon, JPMorgan Chase’s chairman and CEO, said during last month’s earnings conference call. “It is litigious. You just look at history, you can see that. Nonbanks [are] becoming huge competitors and they don’t have the same regulations.”
The regulatory burden could become heavier if a current exemption from a rule capping debt-to-income levels at 43% for qualified mortgages is allowed to expire at the end of 2021, said Robert Broeksmit, president of the Mortgage Bankers Association.
“Unless these problems are fixed, we fear that many loans that qualify as QMs today will either move to FHA … or not get made at all. That’s not right,” Broeksmit said Monday at the association’s National Secondary Mortgage Conference in New York.
For now, growth-minded bankers believe they have what it takes to hang tough with mortgages.
University’s low cost of funds helps insulate it from market shocks, Ranzini said, adding that the company’s competitive position has gotten stronger as rivals drop out. Another strength is University’s continued emphasis on a basic formula.
“If you want to be successful long-term, you have to focus on referral business from centers of influence like Realtors and attorneys,” Ranzini said.
“You have to be monomaniacally focused in support of that business,” he added. “The value in this industry is created by its people. It’s the quality of the people and the support you given them that are the differentiating factors.”