The slowdown in residential mortgage lending has forced many banks, large and small, to cut jobs and slash expenses.

But the $2.7 billion-asset HomeStreet Bank in Seattle is doubling down in mortgage lending at a time when others are scaling back. The 92-year-old thrift is hiring more loan officers, expanding into new markets and opening home loan centers throughout California, even as it cuts some jobs in its home market.

"It feels a little schizophrenic at times because we are reducing our workforce in existing markets and growing in new ones," says HomeStreet's Chief Executive Mark Mason. "It's not a 'Field of Dreams' strategy of 'Open it and they will come.' This is a generational opportunity to hire competent and quality lenders."

With refinance volumes drying up, HomeStreet is eager to capture a larger share of the purchase market, which is more relationship-driven. Last year it hired dozens of lenders from MetLife Bank after MetLife exited mortgage lending and it is looking to add more seasoned loan officers that have relationships with wealth managers and Realtors — the boots on the ground with direct contact to potential home buyers - Mason says.

It has already hired teams of mortgage bankers in California, Utah, Arizona and California as part of its plan double the number of loan officers in the next 12 to 18 months from the 350 it has today. Mason expects many of the new hires to come from large banks that have laid off mortgage lenders and small lenders that are scaling back or looking to merge with other lenders.

The bank also opened a loan office in Pasadena, Calif., last month and it plans to open six more offices in Northern California including Sonoma and Napa, and a couple more in Southern California, including in Irvine and San Diego.

Expanding into California made the most sense, since it is the largest mortgage market with 14.6% of all loans and 22.1% of all dollar volume (Texas is a far distant second with 6.1% of all loans and 5.1% of dollar volume.)

"California has incredible market share and that was what led to our expansion in California first," says Rose Marie David, an executive vice president and single-family lending director at HomeStreet. "The people we're hiring are all seasoned purchase-focused originators within these markets that will be very competitive."

The stakes are especially high for HomeStreet, which got its start in the 1920s as a mortgage bank and still depends heavily on mortgage lending for income. Nearly 50% of HomeStreet's assets are in residential loans, compared with 29% for the average thrift, according to the Federal Deposit Insurance Corp.

HomeStreet said Tuesday that it earned $1.7 million in the third quarter, down 86% from the second quarter and 92% from a year earlier. Its mortgage banking segment posted a net loss of $2.2 million in the third quarter, compared with net income of $24.3 million a year earlier. A drop in mortgage applications caused a big disparity in third quarter earnings because many loans with interest rate locks were booked in the second quarter.

"We are rebuilding our mortgage profitability but it will be hard to achieve the really high levels of mortgage banking income we've had prior to the third quarter until we hire more people," Mason says.

HomeStreet is not alone in going on the offensive.

The $56 billion-asset Zions Bancorp. (ZION) in Salt Lake City, has said it wants to become a bigger player in mortgages, and TD Bank, the $228 billion-asset unit of Canada's Toronto-Dominion Bank, said it is hiring about 140 loan officers.

"We are contrarian," says Malcolm Hollensteiner, TD Bank's director of retail lending products and services. "The pullback is really on the lenders who had focused exclusively on refinance market whereas purchasing a home is a different ballgame."

HomeStreet is also out to win business from nonbank lenders.

David, the head of lending, says the bank is well positioned to steal market share from nonbank lenders because those firms are less equipped to deal with regulatory requirements that go into effect early next year.

"We almost see regulatory compliance as a competitive advantage because we have a strong mortgage banking background and we know how to manage through compliance since we have the infrastructure already in place," says David, who is one of a cadre of MetLife lenders hired by HomeStreet last year.

HomeStreet did not originate any subprime or no-documentation loans and so was not hobbled by legacy assets. But it was battered by losses on construction and development loans and only was released from regulatory enforcement orders last year after raising $77 million in an initial public offering.

HomeStreet's stock has fallen 32% since March as investors realized the refinance boom fueling mortgage profits was coming to an end.

Surprisingly, refinance activity has picked up slightly in the past few weeks, and Mason says that HomeStreet will remain active in that business as long as the demand is there.

But, long-term, the company's success depends on hiring the right loan originators and supporting them in key areas such as closing loans on time and providing reliable customer service.

"There are 10 to 15 things to do that are important to the best mortgage originators," he says. "They just want a platform that doesn't get in their way."

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