The home loan department at Centreville Saving Bank in Warwick has been busy this year. In the first seven months of 2009, the bank – eighth largest in the state by deposits – originated 719, up 87.7 percent from 383 mortgages in the same period last year. It’s a similar story among other local financial institutions.
Douglas Gregory, senior vice president of residential lending at Centreville, answered a few questions about the increased mortgage activity.
PBN: Why are mortgage originations up considerably at Centreville Bank and other local institutions since the start of the year?
GREGORY: The low interest rates are certainly a large part of the reason. However, I believe that the uncertainty in the financial markets has many people desiring to do business with local institutions such as Centreville Bank. We have been in Rhode Island since 1828 and that steadfastness is very attractive in this type of market. In the early 1990s during the credit union and bank crisis we noticed the same type of phenomenon.
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PBN: Centreville doesn’t sell its mortgages, instead holding them in their own portfolio. Is that a rarity in the banking industry these days? What are the advantages and disadvantages to this?
GREGORY: It is very rare today for a bank or a credit union not to sell its mortgages. In fact, many of our customers comment that they come to Centreville Bank because we do not sell our mortgages. We feel it better serves our customers to hold onto our mortgages because by doing so we adhere to our philosophy of investing in the communities in Rhode Island and developing relationships with our customers. Since we do not have to underwrite our loans to the criteria of the secondary market, we can look at each loan individually to assess its merits.
PBN: Here’s another oddity: Centreville doesn’t offer a 30-year fixed rate mortgage – something that is a standard product at most institutions. Why not? What is the most popular product and why?
GREGORY: We do not offer a 30-year fixed-rate loan because of the possible interest rate exposure to the bank. Of the 30-year loans products that we do offer, [the bank’s adjustable rate mortgage that adjusts after 15 years] is the most popular with customers and the product that most closely approximates a 30-year fixed-rate loan. The interest rate will adjust up or down only once after 15 years and will remain the same for the next 15 years. On average, most people will refinance their mortgage every eight to nine years. With this in mind, Centreville Bank can offer a custom mortgage that can best meet the needs of our customers’ long-range financial goals.
PBN: Statistics from the Warren Group show that while originations from most of the smaller local banks are up, activity has decreased at Citizens Bank, Bank of America and Sovereign Bank. Can you explain why?
GREGORY: Local banks, such as Centreville Bank, are only concerned with the Rhode Island market and are not distracted by lending issues that larger banks face in other parts of the country. During this economic downturn, we remain committed to our customers. As an institution, we are above most banks in being well capitalized and are positioned to continue lending to our customers. Our goal is to reinvest in the communities of Rhode Island by giving families and businesses the access to capital they need to succeed so that they in turn may also reinvest in their communities.
PBN: I assume a lot of the mortgage activity earlier this year was refinancing. Has the purchase market picked up any for Centreville as the economy appears to be stabilizing? What’s the percentage breakdown between refis and purchases in your originations?
GREGORY: In early 2009, Centreville Bank was extremely busy with both residential and commercial refinance applications. As the year has progressed, we have experienced an increase in the purchase market. Approximately 13 percent of the originations have been sales compared to refinances of mortgages from other lenders.
