Jeff Judy

Jeff's Thoughts - May 22 , 2013

Should You Do Mortgage Lending?

Note: For this issue of Jeff's Thoughts, I've invited Tom Kedrowski to share his expertise in mortgage lending in regard to one of the most fundamental questions you have to ask yourself about the role of mortgages at your bank. More about Tom below.

If you offer mortgages, do you have to offer all types of mortgages, or can you cherry pick what you want to do as a bank?

One of the biggest questions in banking today is whether this type of lending makes sense for the bank. Making a profit and making the process simple for you and your lenders are good goals, but are they compatible with a good customer experience and customer satisfaction?

As a result of an industry failure to regulate itself, mortgage lending has changed, and so must the bank's approach to mortgage lending. Meanwhile, anyone can go online, get a quote and apply for a mortgage today.

There are a lot of quick fixes out there, everything from brokering loans out of the bank, to having one of the staff work on mortgages in between their regular duties. It really boils down to four options.

The first is a comprehensive approach to mortgage lending. That means staff that are committed full time to mortgage lending. All branch employees are tuned into asking the right questions of your customers to develop and support the mortgage operation internally. The mortgage loan officer is also outside the bank on a regular basis working leads, and you offer a number of retail loan products besides 30 and 15 year conventional mortgages, choices such as FHA, VA, first time home buyer products and specialty products like USDA to the market place.
In this approach, mortgage lending is not something that employees do in their spare time. Rather, the loan officer and the bank are highly attentive to mortgage lending and are closing loans as part of their total approach to their market. A well run mortgage operation will provide opportunities for the bank to grow as part of a comprehensive approach.

A second option applies when you are not willing to commit to full time mortgage staff. This approach demands training and support for those loan officers to be effective players in your market. I would suggest partnering with a mortgage professional in the area who can help the bank offer services and support for its customers. That partner's goals must be in line with what the bank wants and needs to support its customers. They must support the bank, not financially, but as a strategic partner in an ongoing relationship. Who does this person work with professionally in the industry? Is this person's professional relationship one that will complement the bank, or is it a relationship that will be competing with the bank for customers? It is not simply a question of "Does this potential partner have a bank account with the bank?". How many times have you picked a relationship just because they banked with you already, never looking at their ability to do the job?

The third option is to focus on niche lending products, for example, construction lending, portfolio loans with three to five year balloons, unapproved condos, any type of real estate needing a short term loan in order to facilitate the transaction. While this would take another article to cover, I mention it as another way to participate in today's real estate world. As a bank, you need to recognize the need for highly trained staff that understand and can work in these specialized niches of real estate lending.

The fourth option is not to offer residential real estate lending at all! If all the bank is going to do is leave it to the compliance officer, or a personal banker, or whoever does car loans, why bother?

There are banks out there that focus on strictly business lending or other niches in banking, but they are exceptions to the rule. A community bank really must include mortgages among their services. That means either committed or trained staff whose job it is to do mortgage lending in the community. As an alternative, a lending partner can deliver that type of support to the bank.

Nothing is more telling than when a customer shows up one day and asks you to notarize documents for a mortgage they obtained from an online vendor. When you ask the customer why they did not come to the bank the customer either says, "I didn't know you offered mortgages", or even more sadly," You did not have the products or rates to compete".

About Tom Kedrowski

Tom Kedrowski has worked as a lender for more than thirty years. Tom has handled almost every aspect of lending and marketing over that period of time, concentrating on residential lending for the last couple of decades. You can contact Tom at trkedrowski@gmail.com .