Magazine article American Banker

More Small Banks Retained Loans in '99 as Rates Rose

Magazine article American Banker

More Small Banks Retained Loans in '99 as Rates Rose

Article excerpt

Rising rates last year prompted more community banks and thrifts to hold loans in portfolio, according to an annual survey by America's Community Bankers.

Just over half the institutions surveyed -- 51% -- sold no loans into the secondary market last year, up from less than one third in 1998. Loans sold in the secondary market declined to 71% of origination volume, from 82% in 1998.

Brian Smith, the trade group's policy director, said the number of community banks selling loans to wholesale private-sector companies rose last year to equal the number selling to Fannie Mae and Freddie Mac. He released the results of the survey at a convention in Phoenix.

Higher interest rates helped make adjustable-rate mortgages -- which are less likely than fixed-rate mortgages to be securitized and more likely to be held by the lender -- more attractive to consumers, Mr. Smith said.

"When rates are at 7% or below, you can't give away an adjustable mortgage," he said, "but now these types of loans are more popular."

He said that over the last few years, borrowers wanted long-term, fixed rate loans, which community banks originated but did not want to hold, and instead sold as quickly as possible. "We were one-night stands with our customers," he said. Today, he said, the liability structure is better, and the banks are keeping some of the loans.

Jeffery R. Hayward, vice president for single-family business at Fannie Mae, said the change does not concern Fannie. …

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