Tuesday, May 29, 2012

Are your home-loan chances better at a smaller bank?

Are your home-loan chances better at a smaller bank? (© Exactostock/SuperStock)
A community bank may have a solution
If your mortgage application can't meet conventional rules, a community bank may have a solution.
Hurricane Ike barreled through Texas in 2008, leaving homes on low-lying Galveston Island sitting in as much as 10 feet of water. When evacuated residents were allowed to come back 10 days later, they found four of Galveston's community banks there ahead of them, ready to loan money to repair or rebuild homes.
"Big megabanks" would not have touched the mess. The banks made 90-day loans at the then-low rate of 5%, so homeowners could get cash while waiting for insurance checks to come through.
In the month after the storm, the four banks loaned out $40 million using standard mortgage applications. But lenders did bend the rules in some instances, if they were satisfied that a borrower would repay the loan. That meant occasionally waiving strict requirements on credit scores, loan-to-value requirements or even debt-to-income ratios.
Banks were looking at homes that were destroyed, or had 7 feet of water in them. If you were going to get them appraised, they were not going to be worth much money. A lot of it was unsecured money to our customers, where we knew their characters and we knew they were going to pay us back.
Borrowers returned nearly 100% of loans from HomeTown Bank in that period.
Human touch
Community banks take pride in this kind of flexibility and local decision-making. There's at least one in nearly every town — 7,000 of them in the U.S., each with assets from $10 million to $10 billion, according to the Independent Community Bankers of America, a trade group.
Typically, those assets are a lot lower than $10 billion. In Texas, for example, the average community bank has $170 million in assets, says Chris Williston, president and CEO of the Independent Bankers Association of Texas. For comparison, J.P. Morgan Chase, the nation's largest bank, has $2.3 trillion in assets; the next biggest, Bank of America, has $2.1 trillion.

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