Cullen/Frost Bankers is offering home equity loans for lower-income borrowers as part of the relaunch of the Texas bank's statewide mortgage business.
The San Antonio-based bank, which will earn credit for the loans under the Community Reinvestment Act, is targeting them at consumers who are being priced out of increasingly expensive Lone Star State housing markets.
The Progress Home Equity Loan offering was launched last month as part of Frost's return to consumer residential lending. The $48.6 billion-asset bank exited the mortgage business in 2000, with executives saying at the time that customers sought mortgages based on cheap rates without building a deeper relationship with the bank.
The bank described the new Progress Home Equity Loan as a companion to its recently launched Progress Mortgage, which Frost made available as part of the initial rollout of its mortgage business.
Frost is looking to incentivize home purchases and renovations at a time when housing prices are skyrocketing, according to Jimmy Stead, its chief consumer banking officer. He pointed to higher interest rates, inflation and job-related population growth as factors that are making Texas housing less affordable.
"The intent is to help in this unique moment where affordability is at all-time lows," Stead said in an interview. "Factor after factor is challenging a lot of families … and preventing them from being able to afford or fix up their home."
Frost began offering mortgages again earlier this year, first in Dallas and then Corpus Christie, Fort Worth, the Permian Basin and San Antonio. Mortgage products will be offered in Austin beginning later this month and statewide later this year.
Both Progress offerings are available to borrowers who make less than 80% of their county's median income. The terms are up to 30 years, and they provide financing to cover closing costs, according to a Frost press release.
In most cases, Progress Home Equity Loan customers will pay no closing costs to borrow up to 80% of the value of single-family residences, condominiums or townhomes, according to the bank.
Progress Mortgage borrowers are not required to make a down payment on a new home or sign up for private mortgage insurance, and they can obtain up to $4,000 in credit to help cover closing expenses.
The Progress Home Equity Loan product will be offered at a 3.99% annual percentage rate, while Progress Mortgage rates will be "very competitive" with the Texas housing market, according to Stead.
Stead said that the new mortgage products are not "a place where we're maximizing our income."
Instead, he said, "it's really that we see each one of these families we help as an investment in the community."
The Texas economy has boomed in recent years. Attractive business policies and a young, diverse workforce have led many companies to relocate headquarters to, or set up shop in, markets that have growing technology sectors and are bolstered by the oil and natural gas industries.
At the same time, population growth, combined with higher interest rates and inflation, have made the Texas housing market more competitive.
Texas, which long had a reputation as a state with plentiful affordable housing, now ranks as the sixth-hardest U.S. state for "extremely low-income renters" to purchase a home, according to a report this year from the nonprofit National Low Income Housing Coalition. The report found that Austin, Dallas and Houston are among the U.S. metropolitan areas with the fewest affordable and available rental homes.
Mark Dotzour, director of research at Texas A&M University's Real Estate Center, said that the state's housing market has shifted since 2008. Previously, the state was "overbuilt," which kept home value appreciation in check, but today there is a "perennial" supply shortage, he said.
"This housing shortage didn't just pop up after COVID. This has been going on since 2008," Dotzour said. "It's pretty easy to forecast home price trends in most all of Texas cities going up because the supply is just incredibly low."
While Frost's new mortgage offerings could help boost home purchase activity in Texas, Dotzour said, "the trick will be whether there's any homes available for them to purchase."
Frost has restaffed its mortgage business with about 90 bankers from other Texas lenders that have been winding down their residential housing portfolios in the current rate environment, Stead said.
The bank's mortgage strategy today is different from what it was two decades ago, when its residential lending business was "transactional" and "volume-driven," Stead said.
Now, he said, in addition to products that incentivize borrowing by a broader swath of potential customers, Frost plans to leverage technology and well-trained mortgage bankers to facilitate a "transparent, understandable and approachable" homebuying experience.
Executives at the bank have ambitious growth projections for the mortgage relaunch. In January, Frost CEO Phil Green said that he expects the new mortgage business to account for around 10% of loan growth within five years.
Expanding access to affordable housing will help the bank remain in compliance with the Community Reinvestment Act, an area that has recently received greater regulatory scrutiny, according to Stead.
While there's "no doubt these loans count towards our CRA obligations," Stead said, Frost's new offerings "go above and beyond that with the intent of helping with the affordability challenge."
"It helps us to help these communities," he said. "This is a real challenge that a lot of families are facing, and we think we're making an investment in helping."
