People's Bank of Commerce in Oregon to exit mortgage lending

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The People's Bank of Commerce in Medford, Oregon, announced plans to stop financing single-family homes on Monday, joining a list of other players that have made plans to cut or downsize in a consolidating industry.

The company will pay $350,000 in one-time termination and severance expenses to leave the business, which has been beset by high financing costs and a crowded playing field relative to today's weak demand.

"Industry trends and the current interest rate environment have made it challenging for this division to remain profitable in recent years," Julia Beattie, president and CEO, said in a press release the bank's holding company issued.

Forecasts for the next two years and increased competition from nonbanks leveraging digital lending factored into the depository's decision to leave home lending on Nov. 1, she said.

"Residential mortgages are widely accessible to consumers due to increased availability online," Beattie said.

Among a list of reasons for bowing out, Beattie also cited Consumer Financial Protection Bureau statistics indicating that nondepositories control 70% of the mortgage market.

A long run of low rates followed by a sudden runup in financing costs have challenged mortgage lenders broadly, leading Dave Stevens, a former Federal Housing Administration commissioner and trade group leader, to predict this will be "the worst winter the industry has ever faced."

However, many in the industry are hoping upward pressure on interest rates is subsiding in line with some improvement in inflation. They generally expect monetary policymakers at the Federal Reserve will decide not to raise the federal funds rate at a meeting this week. 

Stevens and industry trade groups also have exhorted public officials to consider providing some support through the Fed's involvement in the secondary bond market because that intervention has put inordinate upward pressure on home loan rates in particular.

However, because the Fed has considered softening of the housing market likely to further its inflation-reduction goal, there's skepticism about policymakers' willingness to intercede unless there's shock to the large mortgage bond market that they consider untenable.

Overall, the industry is about two-thirds done with the downsizing necessary to bring capacity in line with current demand and likely won't profit until spring buying starts, Marina Walsh, vice president of industry analysis at the Mortgage Bankers Association, forecast earlier this month.

Banks haven't been as quick to cut as nondepositories, Walsh noted. But now institutions in the latter category affected by proposed capital rules for players above a $100 billion asset size are facing additional pressure to scale back mortgage investments or get them off their balance sheets.

The capital proposal in particular would weigh risk for mortgages with high loan-to-value ratios more heavily, potentially restricting the access for low- to moderate-income borrowers for whom down payments are hurdles to homeownership. The rule could also negatively impact nonbank financing.

Other depositories that have downsized mortgages this year include Wells Fargo, which withdrew from correspondent lending; Republic First, which staged an exit from jumbo, and New York Community Bancorp, which reduced Flagstar's mortgage lending operation after buying it.


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