Frost Bank had successfully exited the mortgage lending sector for two decades when Chairman and CEO Phil Green decided it was the perfect moment to re-enter the marketplace. His vision was clear: he wanted to approach this venture in a manner unique to Frost, ensuring it reflected the bank’s core values and commitment to serving its community.
“But he wanted it done the Frost way,” remarked Bobby Berman, the executive vice president of research and strategy, who was tasked with the significant responsibility of building a mortgage division from the ground up. This ambitious project aimed to not only reintroduce mortgage services but also to cater specifically to the needs of underserved populations.
Fast forward nearly two years after the announcement that the bank would resume offering home loans, and the new division has grown to a robust team of 90 professionals. They have recently launched three innovative mortgage products in San Antonio, marking a significant milestone in the bank’s strategic expansion.
Among these offerings is the bank’s distinctive “Progress” mortgage. This product is designed specifically for qualified lower-income borrowers, allowing them to finance 100% of the purchase price of their home. Importantly, it does not require private mortgage insurance, significantly reducing the financial burden on borrowers, and also includes provisions to cover up to $4,000 in closing costs.
“One of the primary reasons we started to offer mortgage loans again was because we recognized a significant gap in available products for lower-income individuals,” explained Berman, who has been part of the Frost team since 1985. The bank plans to expand its mortgage offerings to all eight Texas regions where it operates, ensuring that more communities can benefit from these services.
The Progress mortgage is particularly appealing to those whose income is up to 80% of the area median income (AMI), a threshold that is reassessed annually. For example, as of June 2023, the 80% AMI in the San Antonio-New Braunfels area was determined to be $49,150 for individuals and $70,200 for a family of four, making homeownership more accessible to many.
This mortgage option is likely to attract a wide range of potential homeowners. Data from Workforce Solutions Alamo indicates that the median household income in San Antonio is slightly above $62,000, with more than three-quarters of local families earning under $100,000 annually. This context underscores the need for affordable housing solutions in the area.
The Progress mortgage embodies the essence of “the Frost way” that Green envisioned, steering clear of the commoditization of mortgage products that previously led to the bank’s exit from this sector. Instead, the bank aims to deliver personalized financial solutions that prioritize customer relationships over mere transactions.
Fostering Meaningful Relationships in Banking
Frost Bank has long focused on cultivating robust client relationships, which have translated into consistently high customer retention rates. For instance, the bank operates a 24/7 hotline staffed by a dedicated Frost lender, available to address customer inquiries about their accounts and assist with loan applications. This commitment to customer service exemplifies the bank’s dedication to being accessible and supportive to its clients at all times.
Mortgage holders will benefit significantly from this customer-centric approach, as Frost Bank will retain and service its mortgages for the entirety of the loan term. Unlike many institutions that sell off their loans, Frost has chosen a model that fosters long-term relationships with its clients. Furthermore, the bank has opted not to pay commissions to mortgage brokers for the loans they originate, which helps eliminate any incentive to push for higher loan amounts.
Frost’s re-entry into the mortgage sector comes at a challenging time for many borrowers. Recently, interest rates have surged to their highest levels since 2002, and the inventory of available homes remains tight, with many homeowners reluctant to sell and give up their lower mortgage rates. Additionally, the refinancing market has become nearly nonexistent due to these rising interest rates, further complicating the landscape for potential homebuyers.
This challenging environment has led several large banks, including USAA, Wells Fargo, and Citi, to downsize their mortgage divisions, creating a pool of talent from which Frost can recruit as it builds its mortgage team. “There were a lot of good people out there,” Berman noted, “who want to be on the ground floor of working for a really good company that cares about its people.”
According to an August survey by the Federal Reserve Bank of Dallas, loan volume has continued to decline, with lenders projecting a pessimistic outlook for the coming months. This sentiment is echoed by the San Antonio Board of Realtors, which reported a 6% decrease in home sales compared to 2022 in its July report, alongside a 2% year-over-year drop in median prices. Homes are now spending an average of 57 days on the market, representing a staggering 104% increase from the previous year.
Strategic Growth and Expansion Plans
Berman acknowledged the “interesting spot” that home lending currently occupies, emphasizing that Frost will initially focus on its extensive existing customer base. The bank rolled out its mortgage products first to employees, subsequently expanding to its Dallas regions in June, and has only recently equipped San Antonio branches with the necessary educational materials to inform potential clients about these new offerings.
Frost Bank is also amidst an aggressive expansion phase, having opened 29 new locations in the Houston area and planning to add four more. It is halfway through the launch of 28 new branches in the Dallas area and opened the first of 17 planned new branches in Austin earlier this year. This growth strategy has positioned Frost as a leader in its market, boasting the largest ATM network in Texas.
As a subsidiary of Cullen/Frost Bankers Inc., Frost Bank holds the title of the largest community bank based in San Antonio, with 27 branches in the area. The bank also aims to open a new location in Port San Antonio on the city’s South Side. As of June, Frost Bank reported $48.6 billion in assets and $17.6 billion in loans, showcasing its financial strength and commitment to serving local communities.
Frost Bank initially exited the mortgage lending business in 2000; at that time, Green cited various factors contributing to this decision, including the observation that many consumers made mortgage choices primarily based on interest rates rather than their existing financial relationships with banks, which had long been a significant concern for Frost.
Being out of the mortgage lending market allowed Frost Bank to sidestep the worst impacts of the subprime mortgage crisis in 2007 and 2008. Notably, it was one of the first banks, and among a select few, that refused federal bailout funds during that turbulent period, demonstrating its commitment to financial integrity.
Customers have been expressing a strong desire for mortgage services for quite some time, Berman noted, and Green felt that advancements in digital technology would enable Frost to craft mortgage products aligned with the bank’s focus on relationship banking. Customers will have the ability to securely complete applications, upload documents, and e-sign their agreements, all while having a dedicated employee guide them through every step of the process.
In addition to the customer-focused advantages, “We also plan on having really competitive, if not the best, rates. And the lowest fees,” Berman added, emphasizing the bank’s commitment to providing value to its customers.
Frost Bank is a proud financial supporter of the San Antonio Report. For a complete list of business partners, click here.
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