Independent Banker - September 2020 - 29

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Federal Savings & Loan Association in Syracuse, N.Y. Last
year, about one-quarter of the community bank's mortgage
originations came from refinances. Through the first half
of 2020, the bank has seen refinances account for well over
half of mortgage activity. New home purchases represent
about one-third of total mortgage activity, with home equity
loans and lines of credit making up the remaining balance.
Steady momentum ahead for refis
Many expect refi activity to remain strong through the end
of 2020. " I think it will be sustainable, because I don't think
the strengthening of the economy will translate into materially
higher mortgage rates, " Haynie says.
The recovery also could improve eligibility for some applicants
who were negatively affected in terms of employment
or income during the COVID-19 shutdown. In addition, the
Federal Housing Finance Agency announced in May that it
was putting new rules in place
that would make it easier for
homeowners who entered into
COVID-19-related forbearance
on mortgages backed by
Fannie Mae and Freddie Mac
to refinance loans after the forbearance
period ends. " That's
a big change, and that will also
help to keep that momentum
going, " Haynie says.
At the same time, demand
is being fueled by a variety of
factors. Those working from
home due to COVID-19 may
turn to a refinance as an option
to lower their monthly payment
or pull equity out of their
homes. Another by-product of
work-at-home orders is that
Hedging against risks
" I anticipate business will
be good in the second
half of the year, but a lot
of it will depend on the
reopening and how quickly
the economy comes back. "
-Sharon Geib, Cadence Bank
more people want to make changes or reinvest in their current
homes, which is going to continue to drive demand for
refinancing. Low rates are also helping drive strong home
purchase activity from both millennials as first-time buyers
and older homeowners looking to downsize.
" Like most mortgage lenders, our volume is up over the
prior year, which is largely due to the increase in refinances, "
says Sharon Geib, executive vice president and president of
the mortgage division at $18.9 billion-asset Cadence Bank
in Atlanta. Geib expects that refi activity to continue into
the fall as borrowers continue to take advantage of the low
rates. " That is a good thing for the economy as it will help
borrowers to lower their mortgage payment, which will help
Despite robust demand, banks are proceeding cautiously to
make sure they are making good loans. Community banks
that hold those mortgages in their own portfolios are also
mindful of how the loans they are making today at historically
low rates can potentially affect their balance sheets
going forward. Banks still have a fairly good spread between
their cost of funds and the mortgage rate that the borrower
pays, Haynie says. The downside
is that as rates go up, that
margin will get squeezed.
Banks are more adept at
hedging mortgage lending
risk, and that risk is something
community banks
continue to monitor carefully.
" When you are in a
low-rate environment, that
is a huge deal for us because
we do hold onto our loans, "
DuMond says. " So, when the
rates go up-and they will-
deposits reprice quicker than
our mortgage portfolio. "
As a result, Geddes Federal
Savings & Loan Association
runs frequent models to fully
understand the risks when
putting new mortgage loans on the books.
In the current rate environment, the community bank
tends to originate fewer 30-year, 25-year and 20-year loans
and makes more 15-year and/or shorter loans. It has also
put in place a biweekly product that allows mortgages to
pay off quicker.
" When you portfolio loans and those rates go up, the
lower rate loans are going to stay there while the deposits
are going up at a faster pace, " DuMond says. " That is a big
concern, and we do limit the longer term mortgages right
now because of that. "
Beth Mattson-Teig is a writer in Minnesota.
independentbanker.org Q 21
put money back into the borrower's pocket, " she adds.
In addition, some bankers expect to see pent-up demand
driving homebuying as states reopen. Typically, spring and
summer are the busiest times of year for new home sales.
Some of that homebuying was disrupted by stay-at-home
orders. " I anticipate business will be good in the second half
of the year, " Geib says, " but a lot of it will depend on the
reopening and how quickly the economy comes back. "
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Independent Banker - September 2020

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