Frost Bank of San Antonio to grant home loans again after pulling out of the business two decades ago

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After more than 20 years of absence, the Frost Bank of San Antonio will again grant real estate loans.

Frost plans to begin offering residential mortgages starting next summer, Chief Executive Officer Phil Green said Thursday.

“We believe we can meet a need that we see from our customers and a demand from our customers in a way that will create a great asset class for us going forward,” he said.

The bank, the largest regional financial institution based in San Antonio, initially plans to hire 20 people – including mortgage underwriters and information technology specialists – to help with the effort. This number should increase to over 100.

Frost enlisted digital services and consulting firm Infosys to help design the mortgage processing setup, from inception to management, and select a technology platform to run and manage operations. Infosys will also design the customer experience during the loan process.

Green did not know when the bank, which has been in existence for over 150 years, started giving home loans.

His residential loans peaked in 1998. He had about $ 415 million in home loans outstanding at the end of that year, which is about 11.4% of his loan portfolio.

Two years later, Frost made the decision to stop providing residential mortgages.

“There were a lot of factors that combined to lead us to this decision,” Green said. “We really felt it had become trivialized in terms of (interest) rates, and we didn’t feel it was that relational. We felt there was so much shopping on the fares.

By commoditized, Green means there was little to distinguish Frost’s mortgage product from that of its competitors.

The decision to exit the business turned out to be fortuitous for Frost with the collapse of subprime mortgages in 2007 and 2008. Many subprime mortgages defaulted, resulting in the Great Recession.

At the end of 2013, the last year Frost reported its residential mortgage balances, it had about $ 32.4 million on its books, or just 0.3% of total loans.

Frost continued to provide other types of consumer mortgage loans, particularly home improvement loans, home equity loans, home equity lines of credit, and second-tier loans. The latter allows a consumer to top up their mortgage down payment or split a large loan to receive a more favorable blended interest rate, a bank spokesperson said.

The bank had $ 1.3 billion in consumer mortgage loans at the end of last year, representing 7.6% of its total loan portfolio. That was more than its energy loan portfolio of $ 1.2 billion, or 7.1%.

Green had no projection on the importance of Frost’s residential mortgages, but said he expects them to eventually overtake his existing consumer mortgage portfolio.

Curtis Carpenter, senior managing director of Illinois-based investment banking firm Hovde Group, which tracks the banking industry, said it made sense for Frost to resume mortgage lending.

“Over the past year and a half, banks have made huge sums of money from mortgage financing,” he said. “That’s right, just industry-wide, with the interest rates coming down after the pandemic. Home loans are more affordable than ever, so people are refinancing.

“Amid a very tough interest rate environment for banks, mortgage income has sort of closed the gap for a lot of that,” Carpenter added. “I’m sure Frost sees it and wants to come in.”

Green, however, said Frost began to consider remaking home loans long before interest rates fell in the past year and a half.

Technological changes – including the processing of home loan applications online – are part of the motivation behind Frost. In addition, the bank wants to capitalize on its recently completed expansion in Houston and its planned growth in Dallas, Green said. It plans to add 25 branches in Dallas over a 30-month period starting next year.

Mortgages will be offered by bankers at Frost branches. It has approximately 150 branches in San Antonio, Austin, Fort Worth, Corpus Christi, the Rio Grande Valley and the Permian Basin, as well as in Houston and Dallas.

Frost plans to service the loans over the term of the mortgage and has no plans to sell the service, a bank spokesperson said.

The bank is a subsidiary of San Antonio-based Cullen / Frost Bankers Inc., which had $ 46.7 billion in assets at the end of June.

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