James D. Jones is founder and president of First Wellesley Consulting Group in Wellesley Hills, Mass.
Community bankers will face significant mortgage challenges and opportunities during the second half of this year and 2009. Community banks have an excellent short-term opportunity to fill the void created by mortgage companies and brokers that have left the business. Customers looking to purchase homes or refinance mortgages now have a somewhat different set of lender options – large banks, including Bank of America, regional and community banks, credit unions and surviving mortgage companies and mortgage brokers. Price competition remains keen. Consumers and Realtors, while valuing the safety and reliability of community banks, still consider price to be an essential factor when selecting a lender.
Community banks have a solid opportunity to regain mortgage market share while adding new customers to the bank. How can banks successfully gain market share in today’s environment? Here are some ideas on how to work with the following:
• First-time homebuyers. Recognize that first-time homebuyers (FTHBs) are emerging as an important group of customers. At-tend open houses for homes in the price range of the FTHB. Provide fast, well-underwritten preapproval certificates. Notify area Realtors of the bank resources available for FTHBs and work with Realtors to offer convenient preapproval and application processes. Advertise the availability of FTHB loan programs. Publicize and hold periodic, consumer-friendly, first-time homebuyer seminars.
• The agencies. Banks can work with Fannie Mae and Freddie Mac to offer the agency products that are in highest demand in their markets. The banks can incorporate the agency’s latest loan level price adjustments and loan-to-value limits into their pricing and fees to the consumer. The best banks will incorporate the agency adjustments into their point-of-sale technologies for at least the Internet and loan officer channels.
• Outside loan originators. Historically, mortgage brokers were successful, in part, because of their entrepreneurial sales force. In 2008, Realtors continue to direct borrowers to sales-focused lenders. Loan originators that are most successful in today’s market are originators that are in the community networking with Realtors and searching for customers – not waiting for consumers to contact them first.
• Government loans. Successful bankers also recognize it is important to react to Congress’s effort to use the Federal Housing Administration to undo the damage of the subprime crisis. More bankers are obtaining approvals from FHA and the Veterans Administration to offer government loans.
• Two customer servicing options. A number of community bankers are recognizing that some of their customers identify price as their highest priority and are flexible as to what company services their mortgage. Bankers now are looking for ways to meet their price-sensitive customers’ needs, generate fee income and place credit worthy customers in appropriate mortgages rather than miss having the opportunity to discuss mortgages with existing bank customers.
• Online applications. A bank’s mortgage Internet site, if well-designed and promoted, can service tech-savvy bank customers as well as attract non-customers to the bank. The best mortgage Web sites incorporate the bank’s most popular mortgage products and include electronic credit reports, automated underwriting (AUS) decisions and electronic disclosures. The AUS decisions include loan level pricing and loan-to-value adjustments.
• “Rich” point-of-sale. Many Realtors are requiring preapproval certificates before showing homes to consumers. As a result, innovative lenders are designing processes to produce rapid, credit-based preapprovals. Banks can also capture the consumers’ attention prior to meeting Realtors by offering convenient, quick and well-underwritten preapprovals in person, over the phone and over the Internet.
The short-term outlook for mortgage process lending in New England includes a rising wave of foreclosures through 2008 with a final resolution of the subprime crisis by 2010-2011. The community banks that will be most successful will be those with the best sales forces, channels, products, pricing, underwriting, investors and operational efficiencies. Mortgages will remain extremely important to bank customers; banks that are able to profitably respond to this demand will gain market share and add new customers.
