Independent Banker - April 2023 - 31

Next: The value of simplicity in a portfolio 
reverts to the full rate in year three of
the loan. " It's not a perfect solution,
but it helps, especially for first-time
homebuyers who might have tight cash
flow, " says Haynie.
Another strategy is to offer
customers alternatives, such as
adjustable rate mortgages (ARMs) or
home equity lines of credit (HELOCs.)
Instead of moving, people may choose
to invest in their current home.
" Typically ... people take out that
home equity line, " says Andrew
E. Silsby, president and CEO of
$1.6 billion-asset Kennebec Savings
Bank in Augusta, Maine. " They wait a
few years, and then they refinance their
mortgage to wrap the home equity and
first mortgage together. " Community
bankers are also educating borrowers
about resources from local housing
assistance programs, including downpayment
assistance.
Portfolio lenders can also be more
creative and flexible with the loans
they put on their books. For example,
Clear Mountain Bank developed Max
Speed mortgage, a product which
will debut at the end of the month
and provide a fast closing on home
purchase loans within 21 days. That
speed is largely accredited to a new
loan operating system the community
bank introduced early this year.
The system will create process
efficiencies, which play a big role in the
bank's ability to offer new products.
The system will also include a new
customer-facing point-of-sale system
and offer greater integration with some
third-party services the bank uses.
Protecting profits
Kennebec Savings Bank anticipates
that its 2023 mortgage origination
volume will drop by about half
compared with 2021. As a portfolio
lender, the community bank currently
has more than $880 million in
residential mortgage loans on its
books. " We're definitely getting
squeezed on net interest margin,
because deposit rates are going up, "
says Silsby.
That is concerning from an income
standpoint, but Kennebec Savings
Bank is continuing to generate steady
income from its existing portfolio.
" We did a ton of loans last year, and
those loans are all paying us this year,
and the year after and the year after
that, " says Silsby. " So, our profit is
going to stay fairly consistent, despite
the drop in volume. "
Another factor helping to insulate
community banks from the negative
financial impact of lower mortgage
originations is that higher interest
rates also have reduced prepayments
and refinancings. So, banks that opt to
hold loans need fewer originations to
maintain or grow their portfolios.
To protect profitability, community
banks are keeping a close eye on
stress that might emerge if we go into
recession. As of January, 99.6% of
the loans at Kennebec Savings Bank
were current. However, high inflation,
especially on essentials such as
food, gas and energy bills, could put
pressure on borrowers' ability to make
their mortgage payments.
When cases of distress do arise,
Kennebec Savings Bank takes the
approach of separating delinquency
conversations from its lending
officer by quickly moving them
to its collections staff. Collections
staff are better equipped to deal
with questions, and it also helps to
preserve the relationship between
lender and customer. " It's a lot about
knowing your customers, " says Silsby.
" We have very low delinquency. That
is part of our relationship banking,
and we have a really good handle on
stress that may be emerging. "
Beth Mattson-Teig is a writer
in Minnesota.
5 tips for a changing
mortgage market
1. Increase training: There's a
whole generation of lenders
that has never worked in
a rising rate environment.
It's important to train
lenders on how to handle
discussions with customers
on higher rates and issues
such as expiring rate locks.
2. Monitor loan portfolios:
Hold frequent credit risk
committee meetings to
review larger loans and
delinquency situations
to discuss strategies for
any workout situations
that arise.
3. Maintain good
communication: Be
proactive in reaching out
to customers if there is a
missed payment or local
layoffs that affect your
borrowers.
4. Improve efficiency: A
slowdown is an ideal time
to review systems, identify
areas for improvement and
implement new processes
and technologies to make
lending more efficient. You
could add a more robust
online mortgage app or
implement technologies to
move closer to an e-closing
or fully digital mortgage.
5. Consider picking up
new talent: Layoffs in the
mortgage industry could
present an opportunity
to hire talented people,
especially if you have an
opening or someone who
may be close to retirement.
independentbanker.org // 31
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Independent Banker - April 2023

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