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Banks ready for 'old way' of business

The subprime loan meltdown is heating up business for some banks.

Unlike many mortgage companies, traditional banks shied away from the high-risk loans that became popular in recent years, such as those that didn't require down payments or income verification. But now -- with many mortgage companies reeling from the credit crisis and consumers seeking stability -- conservative lending practices are paying dividends for banks, say industry officials.

"The pendulum is swinging back toward more conventional borrowing, more thorough underwriting standards, the old way of doing business," said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association. "Banks are probably going to capture a larger piece of market share again."

Cuff said many independent mortgage companies that specialized in subprime loans -- loans to home buyers with less than stellar credit -- were actually run by former bankers lured by the potential for big profits without all the regulations of traditional banking. There's evidence their former employers may be having the last laugh.

Mortgage originations at JPMorgan Chase Bank grew 41 percent in the second quarter, to $44.1 billion from $31.2 billion for the same period in 2006, the bank reported to the Securities and Exchange Commission.

"As [lending] companies go out of business or pull back dramatically, we think we're going to grow our market share," said Tom Kelly, a JPMorgan Chase spokesman. The bank had the sixth-largest market share among Massachusetts mortgage lenders in 2006, according to Warren Group, a Boston real estate research and publishing firm.

But Alan Pasnik, a Warren Group analyst, cautioned it may be too early for data to decisively spell out whether banks are the winners in the subprime mortgage meltdown. Four of the top five mortgage lenders in the state were banks in the first half of 2007, he said, compared with three in the same period last year. While all of those banks increased the number of new mortgages they sold this year, they only managed to displace one mortgage firm from the top five, and that company wound up in sixth place.

"The public troubles of lenders are just beginning to come to roost now," Pasnik said. "It's way too early."

Some mortgage companies, however, scoff at the notion that banks are starting to grab business away from them.

"I think mortgage bankers like myself would argue that many of us continue to do very well, thank you very much," said Bill Mullin, president of NE Moves Mortgage LLC, the home lending arm of Coldwell Banker Residential Mortgage.

Unlike some other mortgage companies, NE Moves did not deal in a lot of subprime lending -- only 3.5 percent of the $1.5 billion it lent for home purchases last year fell in that category -- so the company hasn't been as affected by the mortgage crisis as other lenders, Mullin said. In fact, the company lent $142 million last August, but expects that number to jump to between $150 million and $155 million this month. Still, some banks see evidence they are benefiting from their competitors' problems. Citizens Bank's mortgage unit is experiencing such an uptick in calls from potential borrowers that it is considering beefing up sales staff, said spokesman Mike Jones.

"We do think there already are some talented people on the streets and given our desire to become a premier national lender, we might be in the market for them," Jones said. Citizens never made subprime loans and has not changed its lending standards because of the nationwide credit crunch, he said.

Stephen Powers, Sovereign Bank's New England regional sales manager, said the company closed 20 percent more new mortgages through June than in the first half of 2006, largely because the bank has added 25 employees to its mortgage sales staff. Some consumers, he said, are turning to banks because the kinds of mortgages they expected to be available through brokers or independent mortgage companies have dried up.

"A year or two ago, there was certainly not as much problem in the mortgage community, there were certainly a lot of options for consumers to go to and those options are becoming a lot more limited," Powers said. "There's stories out there where consumers are showing up at the closing table and the company that's supposed to be closing with them isn't able to do the deal."

Keith Reed can be reached at reed@globe.com.

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