Scituate Federal Savings Bank introduced its Coast to Coast loan program on Feb. 1.
As baby boomers look to retire and interest rates remain favorable, more people are buying a second home and Scituate Federal Savings Bank is taking advantage of the evolving marketplace.
Introduced on Feb. 1, the bank’s Coast to Coast loan program has been touted as offering financing for second homes “not only on the South Shore but coast to coast nationwide and everywhere in between.”
According to Jack Pelrine, vice president and marketing director at Scituate Federal Savings, bank executives discussed the idea of a second-home loan program for a few months.
“We had the capability to do this product,” Pelrine said.
The bank has approximately $198 million in assets with branch locations in Scituate, Norwell and two in Marshfield.
With both a federal charter and a partnership with ABN AMRO, an international bank focusing on consumer and commercial banking and supported by an international wholesale business, Scituate Federal Savings was able to offer financing to borrowers who were interested in purchasing second homes throughout the country. ABN AMRO approached Scituate Federal Savings with the offer to form a corresponding relationship, according to Jim Doyle, vice president and senior lending officer at the Scituate bank.
“It gave us the technology to take applications,” said Doyle.
As a result of its partnership with the national mortgage company, Doyle said the bank can guarantee closing costs at the time of the application. The bank’s loan officers file the application on an internal Web site, which is automatically sent to ABN AMRO, which then orders the appraisal, title insurance and other necessities to close a loan in the specific location of the property being purchased. Working with a larger company also allows the bank to offer competitive pricing.
‘A Flashy Product’
Robert B. Segal of J. William Mantz Investment Advisors in Gloucester said partnering with a national company is a strategic move for a community bank.
“Outsourcing vendor relationships makes a lot of sense,” Segal said.
He added that working with a national company also tends to keep costs down, which is helpful during periods of lighter activity.
For Scituate Federal, the product grew from customer need. Doyle said customers who were utilizing other bank products, such as a savings account, would also mention they were interested in purchasing a second home.
According to the 2005 National Association of Realtors Profile of Second-Home Buyers, there was a record 2.82 million second-home sales in 2004, up 16.3 percent from 2.42 million in 2003. Vacation home sales rose 19.8 percent to 1.02 million in 2004 from 850,000 in 2003.
NAR said there are a few factors contributing to the burgeoning market, such as an increasing perception that residential real estate is a solid investment. Baby boomers are focusing on the quality of life for their families, and those borrowers are equity-rich and aggressively buying second homes for both investment and retirement.
According to NAR’s study, the typical person investing in a rental home is 47 years old and earned approximately $86,000 in 2003, whereas the typical vacation home buyer is 55 years old and earned $71,000.
Pelrine said the product is intended for a “good cross-section” of borrowers.
Acknowledging the South Shore as an affluent area of the Bay State, Pelrine said the bank hopes to target baby boomers and retirees. However, he added that the bank expects to see borrowers of all ages looking to purchase homes in places likes New Hampshire and Florida. The bank has already closed a few loans in both of those states.
According to Brian Koss, senior vice president of Countrywide Home Loans in Waltham, lenders generally require a larger down payment with a second home. But there are other methods to secure the cash if the borrower does not have enough, Koss said. Borrowers can refinance a primary residence, tapping into equity and using the cash as a down payment. Koss said that technique is attractive, especially if the primary home’s value has appreciated quickly. However, many homeowners refinanced in the last few years, during the refi boom, and that option may not make the most sense, financially.
Borrowers also can take out a home equity line of credit on the primary home to make the down payment on the second home. However, Koss warned that rates on home equity loans are usually tied to the prime rate, which can fluctuate.
Another option for borrowers is to take out a separate, first-lien home loan on the second home.
For Scituate Federal Savings, the new product is intended to strengthen the bank’s name in the communities it serves.
Pelrine said the second-home loan program is a niche product, but it is meant to differentiate Scituate Federal Savings from its competition.
“It’s more of a flashy product for us,” Pelrine said.
Doyle said he suspects the bank is the only financial institution in the state that is offering second-home financing from coast to coast.
Segal said he isn’t familiar with any other community banks offering a similar product.
“It sounds like they are marketing to their existing customers,” Segal said.
Pelrine said the product is a way to raise the awareness of both existing and new customers.
“It’s awareness, it is part of building our brand as a strong community lender,” Pelrine said. “We look at it as strengthening our brand.”
Segal said anytime a bank can develop a niche, it only helps the bank more.
“[Second-home financing] is a great idea,” Segal said. “For a bank, it gives them another product, more income.”
Segal added that profitability is higher with more products. And creating another avenue for income is important during slower times, he said.
Now that the refinance boom has ended, new products will help bring in revenue.
“[Niche products] really help supplement business when times are slow,” Segal said.
Segal said it is difficult to say if the second-home financing program will become popular among other banks, but offers the following advice: “Banks need to keep offering niche products that customers want.”
Jennifer Jope may be reached at jjope@thewarrengroup.com.
