San Antonio-based Frost Bank prides itself in its ability to offer its customers services they want, Blair McGrain, the bank’s chief marketing officer attests.
That’s why the $52.9 billion-asset institution is bringing back a product it hasn’t offered since 2000: residential mortgages.
“They’ve been asking for this forever,” said McGrain. “People think it needs to be a part of our portfolio.”
Frost’s residential mortgage lending peaked at the end of 1998, when the firm had about $415 million in home loans outstanding, according to the San Antonio Express-News. That year, mortgages made up 11.4% of its loan portfolio, the paper reported.
But the bank stopped originating home loans two years later, after leadership felt the offering no longer fit its profile, McGrain said.
“It didn’t feel ‘Frosty,’ from what I understand,” said McGrain, who joined Frost in July. “The incentive structure around selling mortgages, the systems we used – it just didn’t fit our profile and we didn’t feel it was right for our customers.”
But as the bank executes an aggressive expansion plan in several major Texas cities, bringing mortgages back to its portfolio adds to the bank’s value proposition, McGrain said.
Frost, which has 163 branches across Texas, has opened 25 branches as part of a six-year 33-branch expansion in Houston. The bank is in the midst of a similar 28-location expansion in Dallas.
“There probably couldn’t be a better time. I know interest rates are a little high right now, but they’re gonna come down,” he said. “Frost is not your little sleepy community bank anymore. We’re getting really big, we’re expanding like crazy throughout Texas. And [mortgage] is something we need and want to offer.”
Challenging environment
As Frost prepares for its return to the home lending space, it is doing so amid a challenging mortgage lending climate.
High interest rates have hampered demand for home loans and refinancing, leading some of the nation’s largest firms, including JPMorgan Chase and Wells Fargo, to initiate hundreds of job cuts in their mortgage units.
Wells Fargo, once a leader in the mortgage lending space, is trimming its mortgage business, a shift that involves focusing on existing customers and nonwhite communities, the bank said Tuesday in a release.
As part of the bank’s new “strategic direction,” Wells Fargo said it will also exit its correspondent lending business, a unit of the bank that buys loans from third-party lenders.
McGrain said the Frost’s decision to re-enter the space predates the current economic climate.
“We started getting the wheels in motion probably two years ago,” he said.
Despite current market headwinds, the bank is bullish on its return to home lending, and has a long-term vision for its mortgage operation, Frost Bank Chief Information Officer Linda Albornoz said.
“We’re not going to be reselling these mortgages. We’re servicing them ourselves,” Albornoz said. “This is about deepening customer relationships long term. These are 20, 30-year relationships.”
The product is in the middle of a soft launch, and is currently open to Frost employees, McGrain said. The bank plans to offer residential mortgages more broadly to current and new Frost customers this year, he added.
McGrain emphasized the bank is doing mortgages “the right way this time.”
The bank also developed its own proprietary loan origination system, McGrain said.
“We’re doing this ourselves, designing it ourselves,” he said. “We’ve also changed the incentive structure, so people working on mortgages are going to be salaried.”
Amid the swath of layoffs that have hit the home lending sector in recent months, Frost bank has been able to secure experienced talent for its mortgage division, Albornoz said.
The bank said it has hired 90-100 new employees as it gears up to launch its the home lending unit.
