WILLIAM D. BABBITT – ‘Create relationships’

For the same reason the stores are packed after Thanksgiving, some banks might now find it hard to close a mortgage. People want a deal and with interest rates finally falling, some consumers are reluctant to close on a fixed rate mortgage for fear that rates will fall as soon as they sign on the dotted line.

But recently, Bridgewater Savings Bank began offering a solution to customers afraid of making a deal just a bit too early.

Called the Bump Down Mortgage, the product offers the advantages of a fixed rate mortgage with the option of lowering the rate should the interest rates drop.

But it’s not simply an adjustable rate mortgage with a new name tacked on.

“In essence, someone comes into the bank and wants to apply for a mortgage. They’re given this bump down [product] option which allows them, during the first 12 months after closing, to get a lower interest rate should interest rates decline,” said William D. Babbitt, vice president and senor residential loan officer at Bridgewater.

In order to lower the rate, it is the customer’s responsibility to call the bank and ask for the rate to be lowered, said Babbitt. Although the bump down option may sound like an adjustable, the bank is really adding an alternative to the fixed rate product.

“The rate never changes,” said James C. Lively, president of the $200 million-asset bank.

“It’s a good idea because, I think, from a marketing standpoint, what they’re looking at is the ability to capture and not lose customers if rates continue to fall,” said Dean C. Caso of Homevest Mortgage Corp., who serves as the chairman of the Massachusetts Mortgage Bankers Association. But Caso questions whether the lowered rate would be able to compete against mortgage lenders.

“What does it adjust to? If it doesn’t adjust to a no points, no closing costs, then it’s a futile rate because people will still shop around,” he said.

The rate will adjust to the standard market rate for the product, whether it be a 30-year mortgage or another, said Lively.

“I don’t think we really did it to compete directly against mortgage companies,” said Lively, adding that the bank has a product that serves that function already. “If a person was looking just for the best rate today, they could take that rate. This product has that unique feature where the person doesn’t necessarily [have to] worry about the future,” said Lively.

The product is a win-win for the customer “primarily, because there are a lot of customers that are on the fence,” said Lively. “They don’t know whether to refinance now or later, and because they’re concerned that interest rates will drop even further because so much of that has been promoted in the news. We came up with this idea and feel that it’s a good one because the customer doesn’t have to worry about that aspect. They have that first year within the life of the loan to exercise that right and take advantage of the low rates should that occur.”

Wonderful Results
Once the bankers recognized the need in their community for that type of product, it only took them a few weeks to put it together in time for its official launch in February. One reason it wasn’t difficult to create such a product was the fact that the bank will retain servicing of the loans. “We’re going to continue to bill the customer; they’re going to continue to deal with us,” said Babbitt. “If a bank or mortgage company sells a loan, once you sell the servicing, you have no control over anything.”

“And the customer loses their options at that point as well,” said Lively.

“Or, to take it a step further,” said Babbitt, “even if we kept the servicing, if we sold the mortgage to Freddie Mac or Fannie Mae, [we] could not bump down the rate because that mortgage has been sold even if we’re servicing it.”

“We’re taking a certain amount of interest rate risk here as well,” said Babbitt.

So far, that risk is paying off. Although Babbitt wouldn’t disclose actual figures, he said the program has had wonderful results so far.

“I can tell you our origination figures for February were better than 100 percent over what we had anticipated. It’s closer to 130 percent over what we had budgeted,” he said. Of that, Babbitt said the Bump Down program is probably responsible for 70 percent of it.

“It’s been very well received by real estate brokers and customers,” said Lively.

Babbitt agreed.

“The Realtors love it because it gives them another selling tool. The builders love it because people that are saying, ‘I don’t know whether I should do it now because of the rates,’ it helps them. But quite frankly, it helps us meet our mission in our market area to serve our customers, but most importantly to maintain and extend and create relationships, which is really what this is all about,” said Babbitt.

Enhancing relationships between customers and the bank is the “key benefit” of the product, added Babbitt. The bank is concerned with maintaining the best possible relationship with its core customer base.

“This is limited to our market area. We primarily cover Bridgewater, Raynham, Middleborough, Lakeville, Taunton and the lower end of [Interstate] 495. So it’s not a product that we’re looking to advertise all over Southeastern New England. It’s pretty much limited to areas where we have customer contact. [Through this product] we can develop a really good relationship, hopefully beyond just a mortgage, with the customer,” said Lively.

“I think we’ve always thought of ways to work with our customer base. We’ve actually even had another product – it was an adjustable rate mortgage that allowed the customer the option to convert to a fixed rate mortgage. That was all done within the first year as well,” said Lively.

Within the first 12 months of the bump down loan, the customer may call and ask that the rate be lowered and is charged a fee of $150. Then the loan remains at that price for the remainder of its life.

The program’s life span will depend on what the interest rates do over the course of the next few months, said Lively. If interest rates rise, the program will probably run its course within the next few months; if they fall, the program may go on.

“Obviously, there’s a limit to how long you can run it,” said Babbitt. “The bank does take some interest rate risk. We’ll look at it in another 60 days and make a decision. But unless we go completely over expectations, I don’t anticipate that we’ll stop the program in the next 60 days.”

Bridgewater Savings Offering Alternative Mortgage Program

by Banker & Tradesman time to read: 4 min