Cranston-based Domestic Bank made a prominent – and surprising – appearance in a recent ranking of risky home loan lenders nationwide, thanks mostly to a mortgage subsidiary that has since closed.
Domestic was deemed the country’s second-riskiest lender in the 250-page study published last month by SMR Research Corp., based on loan documents filed at county courthouses and data filed with the federal government.
The study examined the 163 largest lenders in the country, so it was unexpected to see the relatively small Domestic Bank on the list at all.
But SMR, of Hackettstown, N.J., combined parent companies and their subsidiaries in its examination, and Domestic subsidiary Intervale Mortgage produced more than 23,000 home loans in 2005, far more than Domestic Bank, according to data filed to comply with the Home Mortgage Disclosure Act.
SMR assigned credit-risk scores based on estimates of how much equity a lender’s customers had in their homes, as well as the percentage of borrowers paying higher interest rates, percentages of teaser rate loans and adjustable-rate mortgages, how frequently income information was used to determine loan approvals, and how often piggyback lending was allowed.
Stuart Feldstein, president of SMR, said last week that the study shows that Intervale scored poorly in every category except in the amount of teaser loans it issued, which was almost none.
“It was definitely Intervale that made Domestic look so bad in our ranking,” Feldstein said.
A Domestic Bank representative released a brief statement last week, saying that Intervale is now “inactive” and has had no affect on operations at Domestic.
“All of the loans were originated and sold in 2005, without recourse. None were funded by Domestic Bank. The Intervale Mortgage division is now inactive,” the statement said.
In a brief phone interview, Jaime Lind, Domestic’s marketing director, called the matter a “non-issue.”
Asked why Intervale had been shuttered, Lind said, “I can’t speak to the rationale behind that business decision.”
Because Domestic Bank – which has nine branches – is federally chartered institution, Intervale was not licensed with the R.I. Department of Business Regulation. Steven L. Cayouette, the state’s chief bank examiner, said he has no records on Intervale.
Although SMR issued a news advisory about the study and disclosed some of the poorest-scoring lenders, the company declined to release the report to Providence Business News, saying it’s a product for which they charge their customers.
Feldstein did review how Intervale fared with two of the scoring criteria:
• 88.1 percent of the loans originated in 2005 were considered high-interest-rate loans, according to figures in the 2005 Home Mortgage Disclosure Act reports. A higher rate is typically given to borrowers with poor credit. That percentage was three times the national average, Feldstein said.
• 33.7 percent of the mortgages were either stated-income or no-income loans. That figure was nearly twice the national average, according to Feldstein.
The Domestic Bank statement indicated that the riskiness of Intervale’s loans was not as great as portrayed in SMR’s study.
“The loans, with high loan-to-value ratios, were primarily made to purchase homes and avoid expensive mortgage insurance. The majority of these were fixed-rate loans, issued to prime borrowers,” the statement said.
While Domestic Bank was given a high-risk score of 2,644, eight of the nation’s 10 largest mortgage lenders earned low risk scores, suggesting they maintained fairly high credit standards from 2004 to 2006, according to SMR. Bank of America had the lowest risk score among the top 10 at 465, SMR. The average score among all lenders was 1,000.
SMR said nearly all the institutions with risk scores above 1,750 are already in bankruptcy, closed or have been sold. For instance, the lender with the highest risk score was South Star Funding LLC of Atlanta, which scored 2,704. It is now closed. •
