How to keep mortgage lending personal

Taking out a mortgage is often the biggest financial decision someone will ever make. That makes it the perfect opportunity for community banks to demonstrate the value of the relationship banking model.

By Judith Sears

With the hashtag #WeDoItForTheBorrowers, Willamette Valley Bank, a $264 million-asset bank in Salem, Ore., declares that there’s something different about how the bank approaches mortgage lending. “We try to focus on the fact that it’s a question of homeownership for our borrowers,” says Dan King, executive vice president of residential lending. “It’s not just another loan to them.”

Relationship banking, with individualized attention, follow-up and problem-solving, is a set of practices that customers are especially likely to see and benefit from in the mortgage lending process. Many bankers and borrowers see it as a distinctive advantage community banks can leverage.

King and his team spend a lot of face-to-face time with borrowers and dive into their customers’ needs and goals. “That makes it less of a commodity and more of a process,” he says. Willamette Valley Bank conducts regular surveys that show customers are impressed with this approach, King reports. “We get feedback that they were overwhelmed and scared about the loan process and that we have taken this complicated government process and made it feel easy.”

The Willamette Valley Bank team’s personal commitment, coupled with increased internal efficiencies, has seen the bank’s home loan volume increase from $467.3 million in 2016 to $744 million in 2018.

A financial education

Practicing relationship banking can also help borrowers make a more realistic appraisal of the impact a home mortgage will have on their lives. “Just because someone qualifies on paper doesn’t necessarily mean that buying that $300,000 house is the right move for them,” cautions Tim Kluender, president and CEO of Community Bank Owatonna, a $58 million-asset bank in Owatonna, Minn.

Over his more than 25 years in banking, Kluender has often challenged first-time homebuyers to take three to six months to save the difference between their rent and the mortgage they qualify for. He’s also asked them how they would cover other expenses, such as property taxes, homeowner’s insurance and items that new homeowners aren’t used to needing, like a lawn mower.

“Say a borrower was paying $800 a month in rent but qualified for a $1,400 monthly mortgage,” Kluender explains. “I would ask them point-blank, ‘How will you come up with the extra $600?’ Often, they didn’t have good answers.”

Quick stat


of millennials use a smartphone as a primary research tool when shopping for a home

Source: Clever Real Estate

This exercise was a real eye-opener for many borrowers. “They found that it was tougher than they thought and that some payments left them little margin for error,” Kluender reports.

For many borrowers, especially first-time homebuyers, this was their first exposure to systematic budgeting. “Many have said that no one taught them this type of thing in school or their parents didn’t teach them this. I think they really felt it taught them some discipline and budgeting skills,” Kluender says.

The personal touch in mortgage lending also means banks find ways to solve loan problems that might derail loans funded in highly tech-centric processes. Jonathan Hale, mortgage lender for $160 million-asset Citizens Bank in Amarillo, Texas, recalls a borrower who opened three new credit accounts just as his home loan was about to close. “That’s a real red flag,” Hale says.

But Hale didn’t drop the loan. “I said to the borrower, ‘This isn’t fatal, but it’s an obstacle. We can’t close in this situation. Come in and let’s figure this out.’”

Hale helped the borrower review his assets and find a way to pay off and close the accounts. Once this was accomplished, the borrower’s credit score bounced back up. “He was appreciative that I did that rather than say, ‘You don’t qualify any more; we’re done,’” Hale says.

Dan King and the Willamette Valley Bank team had the hair-raising experience of a borrower arriving at their closing with the news that the financing had fallen through for the purchaser of their home and the mortgage insurance was going to increase.

The team leapt into action. While the loan documents were being signed, the underwriter revised the loan to incorporate the new circumstances. The loan originator and the underwriter also called the mortgage insurance company and persuaded them to match the original pricing. “We made all of these changes while the borrower was signing loan documents and the loan was funded on time,” King recalls.

The community banking ideal

Community banks that leverage their relationship banking skills are positioned not only to be competitive but also to earn customers for life. “We look at helping borrowers, especially the young people with thin credit files, as an investment in our future,” says Hale. “That keeps a pipeline going for us.”

“We look at helping borrowers … as an investment in our future.”
—Jonathan Hale, Citizens Bank

For Kluender, personal counseling that takes a comprehensive view of the borrower’s situation can and should be a community bank selling point. “Many banks have seminars,” he says. “One-on-one advice and coaching demonstrates the added value that community banks can provide. We need to put out that message in marketing and advertising that we’re not here just to push a product but to provide education for customers and the community. In other words, we want to set them up for success, not failure.”

Judith Sears is a writer in Colorado.