The issuance, re-selling and servicing of mortgages has become such a tangled mess that some consumers are beginning to seek out banks that will retain the servicing of the mortgages they originate and maintain direct relationships. "We definitely have seen a change in consumer behavior where they're not concerned about going online and getting the best deal possible, they're more concerned about dealing with someone they know," says Marti Rodamaker, president of Mason City, IA-based First Citizens National Bank.

Cy Brinn, the president of Metavante, whose company offers mortgage and consumer loan origination systems, also says he's heard from community banking clients that there's been an increased call for service-retained mortgage loans. "Consumers are interested in finding lenders that will actually hold their mortgage, so that they don't have to worry about getting lost in the shuffle as servicing-released loans are traded over and over again," Brinn says.

That certainly jibes with what Jack Hopkins, president of Mitchell, SD-based CorTrust Bank, has seen. "Since the first of the year our business has picked up quite a bit," Hopkins says. "The people have quit going to the mortgage brokers and the people that were doing the exotic products. Our products are plain vanilla."

CorTrust, with more than $530 million in total assets, deals mainly in 15- and 30-year residential mortgages, and with 99 percent of the bank's mortgages CorTrust retains servicing after selling the loan to Freddie Mac or Fannie Mae. Today the bank services 3,200 loans worth $350 million, a 40 percent jump from last year. The reason this is important, Hopkins says, is because it's the best way for the bank to deepen the customer relationship with the bank.

Servicing creates a natural opportunity to sell products such as second mortgages, car loans, personal loans, credit cards and deposit accounts. "The idea is controlling the first mortgage and being able to market and cross-sell other products to these customers, as long as you can keep them satisfied with the servicing," Hopkins says.

Rodamaker concurs: "The residential real estate mortgage is the key point of entry to relationship banking. Once we have that mortgage, we have that customer tied in with maybe the first degree of loyalty. It's then our responsibility, our challenge to sell them into other products and services that the bank offers." First Citizens currently services 2,000 loans worth $150 million.

A risk with selling off the servicing, these bankers say, is creating an opening for an enterprising competitor to wedge themselves between them and their customer. "We want the customer to deal directly with us. If they have a problem with their payment or it didn't get applied correctly or they're going to be a few days late, whatever the case may be, they can contact us," Rodamaker says.

Still, many community bankers feel that servicing is not for their bank. Greg Deckard, who is the president, chairman and CEO of State Bank Northwest, says that the increased cost of technology and staff doesn't make sense for his bank, which is based Spokane Valley, WA and has just over $100 million in total assets. What his bank does do, though, is broker every loan the bank makes through seven or eight investors in the secondary market. Those investors shop that loan around to find the best deal for the customer. Deckard believes the bank brings value through the loan origination process, not the servicing aspect.

While CorTrust's Hopkins agrees that service retention may not be for everyone, those that can, should, he argues. "The fee income [from servicing] is fairly minimal," he says. "You're paid 25-basis points of the mortgage on an annual term for servicing. So it takes some economy of scale to get up to a level where the servicing makes some sense where you're not losing money. But again, for a community bank that wants to retain that customer relationship, it's probably fairly cheap when you compare it to marketing."

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