Frost Bank had been out of the residential mortgage business for two decades when Chairman and CEO Phil Green told his leadership team the time was right to get back in.
“But he wanted it done the Frost way,” said Bobby Berman, group executive vice president of research and strategy, who was tasked with building a mortgage department from the ground up.
Now, almost two years after announcing that the bank would offer home loans again, that new department is 90 people strong and has just begun rolling out three mortgage products in San Antonio.
Notably, that includes what the bank calls its “Progress” mortgage, which offers qualified lower-income customers the opportunity to finance 100% of the cost of their home, doesn’t require private mortgage insurance and covers up to $4,000 in closing costs.
“One of the primary reasons we started to offer mortgage loans again was because we knew there was a gap in products for lower-income folks,” said Berman, who joined Frost in 1985. The bank eventually will expand its mortgage offerings to all eight Texas regions in which it does business.
The Progress loan is aimed at Bexar County borrowers who make up to $67,200, said a bank spokesman, based on area median income as calculated by the Federal Financial Institutions Examination Council, an agency of bank regulators. In September, that income limit, which is adjusted annually, will grow to $71,280.
That mortgage could be attractive to a lot of residents. Median household income in Bexar County is just over $62,000, according to data from Workforce Solutions Alamo; more than three-quarters of local households have annual incomes below $100,000.
The Progress mortgage in many ways encapsulates “the Frost way” that Green sought, and eschews the commodification of mortgage products that helped push the bank out of the market in the first place.
‘Relational banking’
Frost has long been focused on creating durable customer relationships that have led the bank to its consistently high customer retention scores. For example, the bank operates a 24/7 hotline answered by a Frost banker, who can answer customers’ questions about their accounts, as well as help them open accounts and apply for loans.
Mortgage holders will be able to take advantage of that perk, because Frost will not be bundling and selling its mortgages, as is typical, and instead will service them for the life of the loan, Frost officials said. Additionally, the bank said it chose not to pay mortgage loan advisors commissions on loans they originate to avoid creating an incentive for them to push higher loan amounts.
Frost re-enters the mortgage loan business at a difficult time for many borrowers. Interest rates recently rose to their highest levels since 2002, and the supply of existing homes remains tight as owners with low mortgage rates stay put. The refinancing business has also all but disappeared as interest rates have risen.
As a result, many big banks have laid off employees in their mortgage departments, including USAA, Wells Fargo and Citi, filling a pool of talent for Frost to choose from as filled its mortgage department ranks.
There were “a lot of good people out there” said Berman, “who want to be on the ground floor of working for a really good company that cares about its people.”
Loan volume has continued to decline, according to an August survey by the Federal Reserve Bank of Dallas, which noted that bankers outlook “remained pessimistic.”
The San Antonio Board of Realtors reported a 6% decline in home sales compared to 2022 in its July report, and a median price that dipped 2% year over year. Homes spent an average of 57 days on the market, a 104% increase from the previous year.
Substantial expansion
Berman acknowledged the “interesting spot” home lending is currently in, and said Frost will focus first on its “whole big current customer base.” It rolled out its mortgage products first to employees, then to its Dallas locations in June. San Antonio branches were stocked with informational materials just last week.
The bank is also in the midst of a substantial expansion. It has opened 29 new locations in the Houston region and is on track to add four more, is halfway through adding 28 new branches in the Dallas region and opened the first of 17 planned new branches in Austin earlier this year. It already has the largest ATM network in the state.
A subsidiary of San Antonio-based Cullen/Frost Bankers Inc., Frost Bank is the largest regional financial institution based in San Antonio, with 27 branches here and plans to open a new location in Port San Antonio on the city’s South Side. As of June, it had $48.6 billion in assets and held $17.6 billion in loans.
Frost Bank got out of the home lending business in 2000; at the time, Green said that many factors played into the decision, including that most customers shopped for mortgages based on rates rather than on existing banking relationships, long a priority for the bank.
Being out of the home loan business meant Frost Bank skirted the worst of the subprime mortgage meltdown in 2007 and 2008. It was the first bank, and one of only a few, that turned down federal bailout funds.
Customers had been asking for mortgages for some time, Berman said, and Green felt like digital technology was also in a place that would allow Frost to create mortgage products that aligned with the company’s focus on relationship banking. Customers can securely complete applications, upload photos of documents and sign digitally on the dotted line, but also will have an employee to walk applicants through every step of the process.
Beyond the customer-centric perks, “We also plan on having really competitive, if not the best, rates. And the lowest fees,” said Berman.
This story has been updated to correct that Frost Bank receives its area median income data for its Progress mortgage from the Federal Financial Institutions Examination Council.
Frost Bank is a financial supporter of the San Antonio Report. For a full list of business members, click here.
