Green Point a Winner in Home Loan Niche

Amid the gloom of the Northeast banking scene, Green Point Savings Bank stands as a beacon of prosperity.

The Flushing, N.Y., institution, with assets of $5.3 billion, emerged last year as the most profitable of the nation's 100 largest thrifts.

High Return on Assets

Owned by its depositors, Green Point posted a return on assets of 1.84%, which also topped that of most major commercial banks. And the thrift appears headed for another strong performance this year, despite a runup in loan delinquencies.

"Green Point has a long record of knowing what it's doing," said Raymond V. O'Brien Jr., chairman of the rival Emigrant Bank for Savings.

Green Point's forte is residential lending. While it has some exposure to commercial real estate, it concentrates heavily in single-family mortgages - and only in the New York City area.

It has proved especially strong in "no doc" mortgages - loans originated without documentation of the borrower's income. While most lenders have pulled back from such loans in the past two years to curb credit risk, Green Point remains an ardent fan.

The loans can appeal to a broad range of borrowers, including self-employed people and New York's sizable population of new immigrants. A newcomer from Hong Kong, for example, might have all the cash needed for a down payment but no U.S. employment history.

"A lot of banks either can't or won't touch that kind of deal," says one rival.

But Green Point will, which has helped it become one of the city's very largest mortgage originators. It expects to write $1 billion of loans this year, roughly the same as in 1990.

To protect itself, Green Point relies almost entirely on property values. It takes pains to obtain accurate appraisals, using an inhouse staff, and it demands heavy equity from its borrowers. Recently, Green Point says, its average new home loan has been for just 58% of the property value, against 74% industrywide.

High Recovery Rate

In other words, if Green Point were to foreclose immediately on a home originally appraised at $100,000, it could sell it for $58,000 without losing a nickel of principal.

That kind of protection has helped Green Point weather the worst market downturn since the Great Depression. By contrast, the venerable Dime Savings Bank of New York has racked up huge losses in home mortgages. Dime, with $11 billion in assets, lost $135 million last year and $92 million the year before.

To be sure, Green Point's delinquency rate is not exactly the envy of the industry. As of March 31, Green Point's noncurrent loans and repossessed real estate amounted to 8.1% of assets, against 5.7% for all savings banks, according to data filed with the Federal Deposit Insurance Corp.

So far, however, the delinquencies have yet to inflict any real damage on the bottom line. Green Point says it sold 112 foreclosed properties in 1989 and 1990 for $14.7 million - enough to cover the principal, interest owed, and incidental expenses except $44,000.

Small Reserve Planned

This year, "just to be safe," it plans to add $15 million to its modest $5 million reserve for loan losses, says Michael J. Gagliardi, chief executive. As a result, he says, annual profits will probably fall 12% from the 1990 record, to $80 million. But that would still mean a return on assets of about 1.5% - higher than all savings banks as a group have posted in at least 10 years.

Ultimately, Green Point is protected by an enormous cushion of capital. Thanks to years of stellar profits, the thrift has amassed equity equal to 12% of assets, nearly double the norm for savings banks.

For stockholder-owned institutions, this would present a problem because it reduces return on equity. But for Green Point - one of the last big thrifts owned by its depositors - the capital simply helps profits. That's because most of the capital has been plowed back into interest-earning assets, creating a wide gap over interest-bearing liabilities.

Mr. Gagliardi, who took charge of Green Point last year, says the high capital is an essential factor in Green Point's success. In making this point, he steals a line from his predecessor, I.J. Lasurdo: "The easist way to make a small fortune is to start with a big one."

In the New York mortgage market, Mr. Lasurdo is pure legend. A Green Pointer since 1935, he rose through the mortgage division to become chief executive in 1982. As CEO, he spent his mornings presiding over the final review of each mortgage application; he spent his afternoons on the phone with local realtors, seeking customer referrals.

Mr. Lasurdo, who retired at the end of 1989, has since been immortalized as "The Mortgage Man" in a bronze plague at the thrift's executive offices in Flushing.

"No one's as good as Lasurdo - there is only one Lasurdo," says Theodore Metalios, president of Century 21 Metalios Real Estate, Jackson Heights, N.Y. "But the place goes on. They still make loans that other banks won't even consider."

Mr. Gagliardi, who joined Green Point in 1987 from Dollar Dry Dock Savings Bank, has brought a more conventional style to the corner office. He has delegated most of Mr. Lasurdo's mortgage duties to an executive vice president, Martin Dash. And he has involved all senior management in extensive strategic planning.

"We've gone from having not too much planning to having one of the best planning departments of any savings bank I know," Mr. Gagliardi boasts.

Certainly, Mr. Gagliardi and his team face some pressing issues. Though many experts believe the local economy and housing market are bottoming out, high delinquencies could persist for at least another year. That will add to collection costs and raise the potential for loan losses.

Meanwhile, the thrift is feeling some heat for allegedly callous treatment of tenants of foreclosed properties. A local newspaper, Newsday, cited instances of tenants' "going for months without heat, hot water, and other basic services."

Mr. Gagliardi says that complaints have been minimal and that Green Point acts no differently than other lenders with foreclosed properties. "Foreclosure is never a happy experience," he says.

Longer-term, the big issue for Green Point is what to do with all the no-doc loans. Until recently, Green Point kept its adjustable-rate mortgages and sold its fixed-rate models to the Federal National Mortgage Association - a strategy intended to minimize the thrift's exposure to shifts in interest rates.

Change by Fannie Mae

But earlier this year, Fannie Mae stopped buying no-doc loans and their cousins, low-docs, to curb its own credit risk. The rival Federal Home Loan Mortgage Corp. has also pulled back from reduced-documentation loans.

While Green Point has the capital to hold all its originations for a least a few years, Mr. Gagliardi is eager to avoid the rate risk that would entail. After all, it was a mismatch of long-term mortgages funded with short-term liabilities that proved the undoing of hundreds of thrifts in the early 1980s.

In an interview, Mr. Gagliardi disclosed that he is preparing some bold initiatives for his board's consideration. One plan is to lengthen the thrift's liabilities, possibly by joining the Federal Home Loan Bank System and securing long-term loans. Such borrowings would be a big step for a thrift that takes pride in funding itself almost entirely with neighborhood deposits.

Securities Issue Possible

Alternatively, Green Point may issue its own securities. While Green Point's capital would certainly help the securities win desirable credit ratings. the whole process is outside Green Point's realm of experience. "We'd have to learn how to do it," he said.

Either way, Green Point will not back away from no-docs. "We're going to stick with our niche," Mr. Gagliardi said. And unlike most of its peers, it has no plans to stop growing.

Even if it finds a way to sell its fixed-rate no-docs, assets should grow by about 60% over the next five years, to $8.25 billion, Mr. Gagliardi says. And if Green Point keeps all its new loans, assets should nearly double, to $10 billion.

Not bad for an old savings bank in the Northeast.

PHOTO : Green Point's Unusual Mortgage Strategy...

PHOTO : Keeps the Savings Bank Ahead of the Pack

PHOTO : STAYING FOCUSED: Michael J. Gagliardi is keeping Point Savings solidly in the residential mortgage business.

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