Why Texas-based Frost Bank is getting back in the mortgage business after 20 years away
After 20 years out of the residential mortgage business, San Antonio-based Frost Bank (CFR) is getting back into the business after the housing market endured its most challenging year in over a decade.
"We had a lot of customer demand for it," Frost Bank CEO Phil Green told Yahoo Finance in an interview. "It was really sort of the time we could see that the demand was there...and thought it'd be a good asset class for us for a long period of time."
Demand for homes has slowly started to swell after higher borrowing costs had pushed many first time buyers out of the market.
Contract signings to purchase previously owned homes increased 2.5% in December from the previous month, ending a six-month slide. Sales of new homes also rose 2.3%, with the median sales price of new homes standing at $442,100 in December.
"I'm bullish on Texas long term…[and] in the short term, frankly," Green said. "That means plenty of people that are going to be buying homes in the state that we’ll be able to help."
According to the San Antonio Express-News, in 1998, the bank's loan portfolio had grown to about $415 million in home loans outstanding, making up 11.4% of its book. Two years later, the bank stopped originating residential mortgage loans.
So far, two home loans have been closed through a mortgage pilot program that's made available for employees only. After a short test run, the mortgage offering will be made available to existing customers.
Green is anticipating the program will be launched "within a couple of quarters."
"We all want the first experiences that people have with this to be great," he noted. "The last thing we want is people thinking we've got a clunky system, to not have the support of the realtor community for us, [and] not to be able to do these things that we want to do for customers."
Despite a cooler housing market, the biggest advantage to Frost's relaunch has been the "reduction in [refinance] activity," Green said.
"[This] gave us a tremendous talent pool to build this organization from scratch," the executive said.
The latest data from the Mortgage Bankers Association out last week showed refinance activity was down 76% from a year ago.
When Frost initially decided to get out of the mortgage origination business, technology was outdated and impacted the customer experience. But the industry has evolved since then, signaling to Green there remains an opportunity to better scale up operations.
In the meantime, the bank has multiplied its locations in several major Texas cities, including 24 branches in Houston, with another eight coming over the next two years, and 30 locations in the Dallas area.
Mortgage team slump
As the housing market slows, many banks are taking a step back from the business. Or at least paring back their headcount exposed to the industry.
JPMorgan Chase, for instance, laid off hundreds of employees in its mortgage unit earlier this month, according to Bloomberg, as mortgage origination volume fell 60% last year as interest rates rose.
And the firm isn't alone, as Wells Fargo, Citi, and USAA have also initiated hundreds of job cuts in their mortgage units as higher interest rates dampen demand for home loans and refinancing.
For Frost Bank, the firm has already hired about 80 loan officers and plans to expand operations.
"We're really having the opportunity to create deeper relationships with our customers than we did before," Green said.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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