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Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release February 1, 2001 #01-08
E-mail: [email protected]

COMMUNITY BANKS PURSUED PORTFOLIO STRATEGY AS RATES ROSE IN 2000, ACCORDING TO ACB SURVEY

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WASHINGTON, D.C. — Because of rising interest rates, community banks retained 83 percent (based on dollar volume) of originated loans in portfolio last year, selling 17 percent in the secondary market, according to a survey by America’s Community Bankers.

“As rates rose [in late 1999 and into 2000], the broad trend in the community banking industry was to focus on portfolio lending strategies; that is, originating and holding mortgages in portfolio,” said Steve Davidson, ACB’s financial economist, in an analysis of ACB’s 2000 Real Estate Lending Survey. “During the low-rate environment through early 1999, community banks had tended to follow more of a mortgage banking strategy of originating and selling substantial numbers of those originations into the secondary market,” he said.

Davidson will formally release the survey results on Friday at ACB’s National Real Estate Lending Conference and Marketplace in Scottsdale, Ariz.

Looking ahead, he predicted that community banks will sell a higher percentage of their loans in the secondary market this year because of an expected lower interest-rate environment. This likelihood was confirmed by the Federal Reserve Board’s decision to reduce the federal funds and discount rates by 50 basis points. Davidson said community banks may also look to the secondary market as a means to increase liquidity and as a source of loanable funds.

America’s Community Bankers and Fannie Mae recently entered into a nationwide partnership to expand homeownership lending opportunities for community banks and their customers through greater use of the secondary market.

“There is a terrific opportunity for ACB member banks to take full advantage of our affinity agreement with Fannie Mae to access the full menu of cutting-edge technologies, educational opportunities and customized products and services at significant cost savings, especially in this interest-rate environment,” said ACB President and CEO Diane M. Casey.

Davidson said the new program could help reverse the trend of community banks selling to companies other than Fannie Mae and Freddie Mac. “One of the most significant trends is the continued growth in sales of loans to conduits and wholesalers,” he said. “For the first time since the annual survey was inaugurated in 1993, the dollar amount of loans sold to private conduits and other financial institutions combined was more than the combined dollar sales to Fannie Mae and Freddie Mac.”

Of those responding to ACB’s 2000 survey, 51 percent of loan sales in dollar volume were sold to private conduits and wholesalers, 16 percent were sold to other financial institutions, 21 percent were sold to Freddie Mac and 12 percent were sold to Fannie Mae.

The survey found that about 49 percent of the community banks responding to the survey sold loans to the secondary market, virtually the same percentage as in 1999. About 70 percent of those selling into the secondary market said the most important factor in their decision to sell was profit. Thirteen percent cited hedging.

The survey also asked about the use of technology in mortgage lending:

The use of automated loan underwriting, including Internet access, "has grown significantly" among community banks over the past several years. The survey found that 38 percent of respondents use automated underwriting. Most used the systems of Fannie Mae and Freddie Mac, even if loans were sold to conduits instead.

While still in the early stages of development, 6 percent of respondents said they link their underwriting software to the Internet. Thirty-eight percent of the banks linked said they generate more than 5 percent of their loans through the Internet.

The majority of community banks, some 61 percent, said they use an automated mortgage loan origination system. The survey found a diffuse and competitive market with 25 systems mentioned.

ACB 2000 REAL ESTATE LENDING SURVEY

SECONDARY MARKET SALES

Percentage of Loans Sold (By Dollar Volume)

<2000 1999 1998

Fannie Mae 12% 43% 23%

Freddie Mac 21% 21% 40%

Private Conduits 51% 32% 31%

Other Institutions 16% 4% 6%

Source: America’s Community Bankers Real Estate Lending Surveys

The survey results reflect 223 community bank respondents of 1,500 banks surveyed. The margin of error is 6.7 percent. Respondents represented all community bank ownership types, charters and regions of the country. The asset size distribution reflects the community banking industry; that is, more than 90 percent of respondents has assets of less than $1 billion. The survey covers the period through Sept. 30, 2000, and was conducted during the fourth quarter of the year.

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The 2000 Real Estate Lending Survey is available for $225 ($175 for ACB members) by calling Lisa Talcott at (202) 857-3119. Complimentary copies are available to working press by calling Jim Eberle at (202) 857-3145.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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