Frost is reopening door to home loans

SAN ANTONIO — After a more than 20-year absence, Frost Bank is going to make home loans again.

Frost expects to begin offering residential mortgages starting next summer, CEO Phil Green said Thursday.

“We believe that we can meet a need that we’re seeing 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 San Antonio-based bank, which has a signifcant presence in Houston, initially expects to hire 20 people — including mortgage underwriters and information technology specialists — to assist with the endeavor. That number is likely to increase to more than 100.

Frost has brought on digital services and consulting company Infosys to help design the mortgage loan processing setup, from origination to servicing, and to select a technology platform to run and manage operations. Infosys also will design the customer experience during the loan process.

Green didn’t know when the bank, which has been around for more than 150 years, first began making home loans. Its residential lending peaked in 1998. It had about $415 million in home loans outstanding at the end of that year, representing about 11.4 percent of its loan portfolio.

Two years later, Frost made the decision to discontinue originating residential mortgage loans.

“There were a lot of factors

that combined together to lead us to that decision,” Green said. “We really felt it had become commoditized in terms of (interest) rate, and we didn’t feel it was that relational. We felt there was so much shopping on the rates.”

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

Frost continued to make other types of consumer real estate loans, specifically home improvement loans, home equity loans, home equity lines of credit and purchase money second loans. The latter allows a consumer to supplement their mortgage down payment or split a large loan to receive a more favorable blended interest rate, a bank spokesman said.

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

Curtis Carpenter, a senior managing director for Illinois-based investment banking firm Hovde Group, which follows the banking industry, said it makes good sense for Frost to resume making home loans.

“Over the past year and a half, banks have been making tremendous amounts of money off of mortgage loan financing,” he said. “Home loans are more affordable than ever, so people have been refinancing.”

Green, however, said Frost began considering making home loans again before the drop in interest rates in the past year and a half.

Changes in technology — including handling home loan applications online — account for part of Frost’s motivation. Plus, the bank wants to take advantage of its recently completed expansion in Houston and its planned growth in Dallas, Green said. It intends to add 25 branches in Dallas over a 30-month period beginning next year.

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

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.