IT TOOK 65 YEARS of writing home mortgages, but Union National Bank of Texas, San Antonio, has finally found a way to move into the secondary market.
The $257 million-asset bank recently joined a national on-line network that helps smaller banks compete in home mortgage lending.
The program, called Residential Express, allows Union National to offer competitive fixed-rate home mortgages along with more than a dozen other financing options.
A division of GE Capital Mortgage Services Inc., Residential Express has opened up opportunities at Union National.
"The program allows us to offer products that for a bank our size would othewise be unavailable," said S. Bradford Sledge, senior executive vice president.
Union National's $40 million mortgage portfolio is composed primarily of adjustable-rate mortgages and short-term loan products. This mix leaves the bank relatively well insulated against a rise in interest rates, but ill-positioned to offer fixed-rate loans.
By participating in Residential Express, the bank can originate long-term, fixed-rate mortgage loans at competitive rates, at the same time limiting risk by selling the loans on the secondary market. GE retains servicing rights on all loans originated through the program.
"There's a need for programs like this in smaller banks because most cannot afford to carry any significant amount of fixed-rate mortgages on their books," said Suzanne F. Donner, a principal at Donner & Associates, Atlanta. The financial services consulting firm specializes in consumer banking.
"Most community banks and smaller thrifts have a limited amount of mortgages they can offer. This program gives them the capacity to offer a much broader range of mortgage products," Ms. Donner said.
Through Residential Express, Union National offers more than a dozen types of mortgages, from simple fixed-rate mortgages to adjustable-rate mortgages to balloon mortgages, with a variety of terms.
GE Mortgage provides the underwriting and document preparation and provides the up-to-the-minute computer on-line system used by the bank.
Union National's customer service representatives accept the mortgage applications, then transmit them electronically to be processed and underwritten.
At the heart of the program is sophisticated loan origination software.
Residential Express' proprietary loan origination software provides the bank's customer service representatives with loan prequalification and application analysis and supplies immediate feedback about underwriting considerations.
The software's graphic capabilities let Union National's mortgage counselors visualize a wide variety of mortgage scenarios for its customers, including rates, points, down payments, and repayment schedules, thus making loan origination easier.
"The software speeds the loan process and gives banks greater accessibility," said Ray Sims, president of Residential Express. "Banks can dial in 24 hours a day and get the status of a loan."
Within three months of introducing the program, Union National had approved 200 more loans than it normally would have, said Mr. Sledge.
Mr. Sims said the program was set up to provide community-and minority-owned banks a better means of servicing their customers, since the high costs of operating a mortgage department that sells to the secondary market are often prohibitive. As a result, these institutions tend to offer products with shorter maturities, adjustable rates, or higher down payments.
"Most of these lenders require 20% or 30% down," Mr. Sims said.
Such shortcomings can send some regular customers to other lenders that offer the gamut of mortgage products.
"But with Residential Express, they are qualified for GE's national insurance. With as little as 5% down they're putting people into homes," said Mr. Sims.
This was certainly part of Union National's decision to join the mortgage program. When the bank started Residential Express in March, its intention was to ride an upswing in the housing market. With both new home construction and existing home sales growing in the area and mortgage rates at historically low levels, the bank hoped Residential Express would help it grab a bigger piece of the lending pie.
"The home mortgage market is more important than ever now, and we're ready to serve both new home buyers and homeowners who want to refinance with whatever mortgage package is right for their needs," Mr. Sledge said.
As he sees it, the program makes Union National more competitive because it can provide the best product based on the needs of the customer at an attractive price.
"We can change the variables of the mortgage, and then [customers] can 95% qualify for a loan on the spot," Mr. Sledge said.
Union National is also saving money. Aside from eliminating some of the interest rate risk and liquidity problems inherent in offering residential mortgages, the program allows the bank to actively participate in home lending without adding tremendous staff and overhead to its mortgage department.
For GE Capital, the payoff comes from new relationships. "Our profitability is in the servicing of mortgages. Adding more accounts is economically favorable for us," Mr. Sims said.
For the customer, there is no fee required to prequalify for a particular mortgage type and size. However, there is a single $350 application fee, which covers the cost of credit checks, appraisals, and origination fees.
Customers pressed for time can also apply over the telephone. A mortgage counselor at Union National asks for specific information about income, debt load, and type of loan required in order to first prequalify the customer for the size of loan he would be eligible for. This process can be completed in minutes.
If the customer has a specific property in mind or wants to refinance a current mortgage, the customer service representative can then proceed with the loan application, credit check, appraisal, and other steps involved in approving the loan.
As Mr. Sledge sees it, Union National and its 167 employees have finally perfected the art of offering competitive mortgages to the customer base it has serviced since 1928.
"We're now offering them the best loans they can get anywhere," he said.