As the bank rapidly expands its branch presence across Texas, Frost execs say it made sense to return. “Around 2020 we started talking about the gap - customers were asking for it and we thought if we could offer the same kind of customer service,” Day said. “It is the most significant purchase people make in their lifetime and we weren’t there.”
Day said the company started the process from the ground up beginning in the fall of 2021, but did not want to team up with an existing lender. The bank would not divulge what is investing in the return to mortgages.
Frost Bank has hired about 80 salaried loan officers, Day said, with no plans currently to add more. “We have a good group of mortgage loan officers now, and we probably will add more as we increase our mortgage lending going forward, but that will depend on the volume of loans. We will be flexible as we grow, so there isn’t a specific target number or timetable for that growth,” he said.
Servicing Silver Lining
Day said the bank will focus on home purchases and not refinancing and they won’t be selling the servicing rights. “We want to hang onto that loan,” he said.
That could be the silver lining in the cloudy mortgage industry. The same MBA report that painted the bleak view on originations in 2022 was more celebratory of servicing. On the servicing side of the business, net financial income more than doubled in 2022, the report said. Higher loan balances pushed per-loan servicing fees higher, while servicing expenses dropped as serious delinquencies fell. In addition, valuation markups on mortgage servicing rights and slower prepayment activity contributed to servicing profitability, the report states. Net servicing financial income, which includes net servicing operational income, as well as mortgage servicing right (MSR) amortization and gains and losses on MSR valuations, was at a gain of $586 per loan in 2022, up from a gain of $261 per loan in 2021.
One Texas loan originator thinks Frost might be looking in the wrong direction. “They should be focusing on wholesale and [the non-delegated] channel, instead of loan origination,” says Aslam Mansoor, a loan originator with Liberty Home Mortgage in Plano, 20 miles northeast of Dallas.
Marty Green thinks Frost is making a move at the right time. He deems them a “formidable competitor in an already crowded marketplace.”
He explained, “Frost has been in Texas for over 150 years and currently has over  branch locations, so they are a name that Texans will know and be familiar with. They also have a fairly large deposit base and those customers may very well prefer to obtain a residential mortgage directly from their banking institution.
“So the existing footprint, combined with an aggressive plan to expand its banking operations in the state, could provide Frost with an exceptional launching pad for its mortgage operation. It also coincides with some other large banks reducing their mortgage operations in Texas, which provides available mortgage talent in the state from which Frost can staff its mortgage team. So from a timing perspective, Frost may be poised to see fairly immediate success in growing their home mortgage division.”