The Federal Housing Finance Board had good news recently for those interested in maintaining sanity in our banking system.

This was an announcement that 36% of conventional mortgages issued in May had adjustable rates, up from 31% in April and 23% in March, making this the highest proportion of ARMs to total mortgages in five years.

The reason for this is that fixed-rate loans jumped by 48 basis points in May for a total of 124 basis points since October, while adjustables rose by only 15 points in May for a total of 59 points since October.

The natural conclusion would be that with fixed-rate mortgages advancing in interest cost, homebuyers have decided to gamble on ARMs instead of locking in these higher fixed rates in the hope that rates will fall again. But one can also hope that these numbers issued by the Federal Home Loan Bank indicate that the banks themselves are coming to their senses about the danger of locking in fixed-rate mortgages in a volatile interest rate world - something they forgot to their peril in the late 1980's.

Many bankers, and community bankers in particular, respond to those who question their offering fixed-rate loans, despite the danger we have seen that results from borrowing short and lending long in a rising interest rate environment, as follows:

"Look, this is what our customers want, and we have thrived by giving them what they feel they should have."

Some community bankers have solved the problem of investing in term mortgages by securitizing and selling them and by trying to shorten maturities through such approaches as biweekly instead of monthly payment.

But some banks still are just making fixed loans and keeping them. This is under the hope, which did not work out last time, that rates will not rise enough to cause these fixed-rate mortgages to decline sharply in value.

But again this can be a dangerous path and an avoidable one. For a second alternative is simply to stop reaching for savings deposits and let the bank shrink to match the availability of sound credits that do not involve interest-rate risk. One key to a profitable bank is buying funds at an attractive cost, and a turn away from growth certainly fits into this philosophy.

Many banks have quietly reduced the rate they are paying on balances to even below 2%, and more importantly, they are doing this without serious adverse consequences or bad publicity.

In sum, pleasing the public may be a great strength of the independent bank, but if the bank becomes so unprofitable thereby that it cannot meet credit needs or even risks its very existence, the goal of pleasing the public has backfired.

Huntington Bancshares in Ohio has developed a program to insure that the customer has to make only one call to get satisfaction on any issue. It is like a personal banker for each customer, no matter how small the account.

How can you offer similar service if you don't have such a program?

How about the way you list the bank in the phone book?

Some banks list their basic number and then under it give the extension for each service. This can be even broken down alphabetically, so that a client with a question on his statement whose name starts with "M" will get the person responsible for that segment of the bank's customer base, while someone whose name starts with "G" will be told to call a different number.

It sure can personalize a bank-customer contact.

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