Separate Structures

New Opportunity—Dan Smith helped form a successful mortgage lending company for Private Bank of Buckhead in Atlanta.

New Opportunity—Dan Smith helped form a successful mortgage lending company for Private Bank of Buckhead in Atlanta.

The operational potential of a dedicated mortgage unit

By Howard Schneider

Consumers who want to finance a home purchase expect their mortgage lender to offer a wide range of options, as well as have efficient operations and expertise to smoothly handle the multi-step, deadline-driven process. That’s the experience of Dan Smith, president of PrivatePlus Mortgage in Atlanta.

“If you want to differentiate the customer experience, you need to control it end-to-end,” Smith explains. “Otherwise, it is very hard to compete in the mortgage business.”

Two years ago those were among the reasons Smith helped form the lending division of Private Bank of Buckhead, a $272 million-asset community bank also in Atlanta. “Mortgage banking and traditional core banking are very different,” he observes. Mortgage lending is more transaction-based than other kinds of lending, he adds. Yet because consumers appreciate the stability of a bank, establishing an affiliated mortgage company can provide useful advantages to a community bank looking to make residential mortgage lending a major business activity.

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Private Bank of Buckhead had been brokering mortgages since 2006. But the bank’s senior management wanted to build an in-house mortgage business to control its service levels throughout the loan process, Smith says. Now having “an alignment of goals” between the bank and its mortgage company make for a successful partnership, he explains.

Both the banking and mortgage operations must work at understanding where their businesses are similar as well as how they’re different, Smith believes. Combining the customer focus and stability of a community bank with the efficiency of a dedicated mortgage entity can be helpful for both, he adds.

Community banks originating mortgages to hold in portfolio often have a limited product range, Smith says. “You can service some customers really well and others not at all.”

PrivatePlus Mortgage allows Private Bank of Buckhead to offer a full mortgage menu, from U.S. Department of Agriculture-guaranteed loans to jumbo loans. A mortgage company also allows a state-chartered bank to expand its mortgage business across state lines without having to obtain licenses in every state it does business. Having both a wide range of products and the ability to lend in most of the country allows mortgage loan officers to follow up on leads and customer referrals no matter where they come from, Smith says.

However, PrivatePlus Mortgage’s centralized operations also provide efficiency. A home loan division requires its own infrastructure to flourish, Smith says. Capital and the ability to scale up are necessary to cover the increasing technology and compliance costs of mortgage lending. PrivatePlus Mortgage goes through an independent budget process and makes its own staffing and technology decisions.

Smith believes community banks and mortgage divisions should be close enough in size so that “they’re meaningful to each other.” Sharing goals, values and business priorities also helps bankers and mortgage lenders find ways to work together.

Community banks can ramp up their mortgage lending activity by purchasing an existing mortgage company or by starting their own. Smith estimates the total costs are similar with each approach. Many small mortgage firms have put themselves up for sale in recent years.


Howard Schneider is a freelance financial writer in California.

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