Two Massachusetts banks have tried their luck with mortgage market investments, and have – thus far – had decidedly different results.

Although it began a new mortgage company only last June, Cambridge Savings Bank suspended operations of the company within the past month. Meanwhile, Randolph Savings Bank expanded its mortgage division in October and has since reported a substantial jump in mortgage dollars.

Thomas Drummey, president of Randolph Savings, acknowledges it’s an odd time to jump into the mortgage business. His own bank board looked askance at him when he suggested making a major investment in the mortgage industry.

“I know it’s kind of against the grain, but my feeling is, the time to react to the market is when it’s down, and get yourself prepared for when it comes back,” he said.

Nonetheless, Drummey has been vindicated in the short term. Since he expanded Randolph’s mortgage division staff by seven in October, the bank has seen its business spike upward. Last year, the bank was making $1.5 million in mortgages monthly; this year, that number is $11 million.

Some of that is from the recent boom in refinancing, Drummey said, but much of that is in new mortgages for buyers who have taken advantage of low home prices and interest rates.

Lack Of Staff Dooms Farwell

While Drummey was concocting his plan to expand the Randolph mortgage division last summer, Cambridge Savings Bank announced it had formed a separate mortgage company, Farwell Lending, based in Stoneham.

The new company was supposed to originate residential mortgage loans throughout Massachusetts and Rhode Island – beyond Cambridge’s existing geographic market – and to generate more income from selling loans to the secondary market.

The plan ran into trouble because of the market’s swing from new mortgages to refinancing, said Senior Vice President Karen Marryat. Cambridge was awaiting regulatory approval on a number of products for new mortgages, and was working on hiring new personnel for its company. In the midst of that effort, the refinancing boom hit and the market swung from new mortgages to refinancing.

“When the refi market started to hit, we didn’t have staff in place to handle it,” Marrayat said. With their personnel candidates occupied with the refi boom, she said, it became tougher to make new hires.

Cambridge’s in-house mortgage staff was busy with refinancing as it was, and the bank eventually decided to suspend Farwell’s operations. Marryat couldn’t say when or if the bank would revive the erstwhile subsidiary and former Farwell head Jeramie Marshal, who is still with Cambridge Bank, referred all questions back to Marryat or Cambridge’s president.

Still, Marryat stressed that Cambridge Bank was aware of consumer worries about banks’ health, and emphasized the bank was still well capitalized and making loans.

Although both examples show banks’ attempts to beef up their mortgage operations, Randolph did so by folding new personnel directly into the bank’s division, instead of beginning a new company.

That’s a key difference for these types of ventures, said William T. Kozak, head of WTK Associates, a Rockport-based bank consultancy. Generally, founding a stand-alone mortgage bank requires a bigger range of mortgage products – not an easy thing to create in a slow market like this. Besides, other costs would be greater with that investment, whereas an in-house expansion is cheaper and can be done with a lesser range of products.

When a longtime mortgage contact of Drummey’s found herself out of a job after Wilmington Savings Bank closed its mortgage division, Drummey suggested she bring her entire team to his bank, which has offices in Rhode Island, Connecticut and Massachusetts.

Seven new hires at once was a big investment, he said, but the team brought an already substantial list of mortgage contacts and Drummey was pleased with how the work was going.

The bank projects that within two years, the division will be bringing in anywhere from $25 million to $40 million in mortgage loans a month. Eventually, Drummey said, the bank may spin off the mortgage division into a subsidiary held under Randolph’s holding company.

“It’s a great opportunity for us,” he said.