Independent Banker - June 2020 - 29

Next: The Fed's recent actions could subsidize borrowers
won't qualify for a loan, whether it's due to a credit
situation, income issue or the property type. " We
can be a lot more flexible in these areas, " he says,
" whereas a large or online bank can really only
handle secondary marketing loans. "
Bridging the gap
With nearly 74 million people residing in rural
areas of the country, lenders in these markets
originate more than 1.2 million mortgages annually.
That's about 18% of the total mortgage
market and proof of the important role that community
bankers play in these regions.
Brookings reports that the rural mortgage
market is just as competitive as urban markets.
The top 10 lenders hold a 20.9% market share,
and 5,486 lenders make loans in rural areas.
Fischer says Community Bank Mankato does
quite a few home loans in the small communities
where it has physical locations. Unlike online
platforms, Community Bank Mankato has established
relationships with its customers, most of
which already have deposit accounts with it. And
while those established customers must comply
with the same credit and debt-to-income criteria
that any homebuyer would, the community bank
also offers in-house loan products that have more
flexible guidelines.
" Rules are rules, and they're set forth by the
government, " says Fischer, whose community
bank offers a standard mortgage that's held on its
balance sheet, and serviced locally, much like an
agricultural or business loan would be.
Similar to the USDA Rural Development Program,
Bank of Mankato's loan can help make
financing available to people who might otherwise
move to more populated regions. A
phenomenon known as " rural flight, " this migration
pattern found 35% of rural U.S. counties
experiencing significant population loss between
1950 and 2010.
Those counties are now home to 6.2 million
residents, a third fewer than in 1950, according
to research from the University of New Hampshire.
" The fact that we can offer an in-house loan
product opens up the options for buyers, " Fischer
says, " and helps keep our small, rural communities
populated. "
In Milton, Wis., president and CEO Brendon
Wilkinson says $118 million-asset First
Community Bank Milton offers a product that
most large lenders don't: a parent co-signer option.
With 43% of Americans age 20 to 24 migrating
to larger cities, a parent's co-signature on a
mortgage can help make rural homeownership
attainable for younger homebuyers.
" Maybe the buyer has a down payment but
needs a little boost, " he says. " Particularly if it's
for the child of one of our customers, we're going
to help them with that. "
In surveying the rural mortgage lending environment,
Wilkinson says that 2020 is off to a
strong start. " Interest rates are awfully good right
now, " he says, noting that ongoing challenges for
smaller bankers include the additional layers of
compliance associated with mortgage lending.
" When it comes to construction disclosures and
related documents, it's more complicated than it
used to be. "
Those complications directly affect borrowers,
who " show up to closing and kind of roll their
eyes at the stack of paper on the desk, " Wilkinson
explains. " We're just following the rules, but
customers don't realize the amount of paperwork
involved and probably think it's overkill. "
In terms of loan velocity, Wilkinson sees substantial
opportunity ahead. " Our competition
is online, and the credit unions are here in our
area, " he says, " but we're definitely heading in a
positive direction this year. "
Quick stat
1 in 3
rural mortgages
are originated
by financial
institutions
with less than
$10 billion in
assets
Source: Brookings
Institution
Bridget McCrea is writer in Florida.
independentbanker.org Q 29
Fischer says secondary market loans and loans
for nonresidential properties have become more
difficult to secure since 2008. In rural areas, for
example, many properties have grain bins, barns,
machine sheds and other outbuildings that are
lumped under the income-producing umbrella.
That increases the difficulty of getting mortgages
for these types of properties. " Since the recession, "
he adds, " the secondary market doesn't
really like those types of properties. "
This spells opportunity for institutions like
Community Bank Mankato. " We're a big part of
keeping these communities afloat with our agricultural
and business lending, " Fischer says.
" Many big banks closed their branches in small
towns, but we relish the fact that we're in some of
these smaller communities, where we just don't
have much competition anymore. "
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Independent Banker - June 2020

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