U.S. Trust Plunges into Fixed-Rate Jumbo Mortgages
One of the oldest private banks in the nation is making a big push into the fixed-rate residential mortgage businesses.
U.S. Trust Corp., making a strong pitch for new business in Florida, California, and New York, is for the first time offering fixed-rate jumbo mortgages.
"Mortgages have become the most important credit product for private banking," said John C. Hover 2d, who runs private banking and business development at the venerable New York company. "We're anxious to have more of that business."
U.S. Trust is offering flexible terms, mailing promotions to existing clients, and encouraging word of mouth about the new product. Says Mr. Hover: "Within our own network, we're making a lot of noise."
The bank's attempt to lure well-heeled individuals seems well timed. Home prices have fallen in many parts of the country, and interest rates on fixed-rate mortgages are lower than they have been in 13 years.
U.S. Trust also believes it can capitalize on heightened consumer interest in home equity products, since home loans have become the sole form of tax-deductible consumer credit.
Since introducing the fixed-rate loans as a supplement to floating-rate mortgages in May, U.S. Trust has originated about $120 million of the new mortgages - or 80% of its $150 million in total originations this year.
Most have been 15-year and 20-year loans and second mortgages on town houses, cooperatives, condominiums, and houses in the New York metropolitan area.
U.S. Trust's total mortgage portfolio is about $500 million.
Some Inherent Risk
The bank's decision to hold fixed-rate loans on its books carries some risk. As thousands of deposed thrift managers can attest, rates can suddenly change, leaving a lender with underpriced long-term assets.
Though many fixed-rate lenders sell their mortgages into the secondary market, U.S. Trust, for the time being, has no such plans.
Mr. Hover said the bank believes holding loans makes for closer contact with private banking borrowers, even though their mortgages might have been sold without their knowing it. As for risk, U.S. Trust can hedge against market fluctuations and is strongly funded, Mr. Hover contended.
"Within the context of their balance sheet, the risk is easily absorbed," agreed Fred Price, a principal with the investment banking firm of Sandler, O'Neill & Partners. "I'm sure they can make a fairly strong case that this kind of lending is profitable for the bank."
Some private banking rivals believe that U.S. Trust can maintain its strategy only if it keeps its portfolio relatively small. It "makes sense only at some low volume levels," said J. David Officer, executive vice president in the private lending division at Boston Safe Deposit and Trust Co.
Boston Safe grew quickly in the 1980s by offering competitive jumbo mortgages with adjustable rates. Like U.S. Trust, it introduced a fixed-rate mortgage product six months ago. But unlike its New York competitor, the Boston company has booked only one loan.
Boston Safe has a $4 billion portfolio of variable-rate mortgages.