The mortgage as a customer-acquisition cost: why two $2 billion banks stayed in

U.S. financial regulators have proposed changes to the bank capital framework intended to bring more banks into the mortgage market, including lower risk weights for certain safer mortgages and revised capital treatment of mortgage servicing assets ^[1]. The institutions in position to benefit first are the ones that never left, and their stated reason for staying has nothing to do with the mortgage's own margin.

The retreat is real and measurable. Bank participation in mortgages declined over a long stretch after the 2008 financial crisis ^[2]; by 2023 banks originated 35% of mortgages and serviced 45%, down from roughly 60% of originations at an earlier point that the source material does not date ^[3]. Two things stand out. Banks now service a larger share than they originate, a ten-point gap ^[4], which means the run-off is concentrated at the front end. And a fall from about 60% to 35% is a loss of roughly two-fifths of the origination franchise ^[5].

Against that, the case made by executives at two community banks is that the mortgage is the introduction, not the product ^[6]. Jim Edwards, CEO of the $2.3 billion-asset United Bank in Zebulon, Georgia, put it directly: "We've always felt like if we get a customer's mortgage, it increases our opportunity and probability to be that customer's bank," naming checking accounts, small-business commercial loans and wealth management as the follow-on ^[7][8]. United has been in mortgages for more than 40 years and both originates and services in-house ^[9]. Edwards said the business has been profitable and has not lost money, but is the most cyclical part of the company's revenue stream, which it budgets and plans around ^[10]. He also said the bank has never wanted to point a customer to a 1-800 number to resolve a mortgage issue ^[11].

Five Points Bank in Grand Island, Nebraska, $2.1 billion in assets, has offered mortgages since 2004 and keeps most servicing in-house, with about 80% of originated loans staying in-house by the estimate of Michelle Sawicki, senior vice president of its mortgage division ^[12][13]. Sawicki said the bank charges lower closing costs than some competitors on purpose: "We'd rather customers put more money into the equity of their home, the down payment, than charge inflated closing costs," adding that a good experience may produce a checking account or a remodeling loan ^[14]. That is an acquisition subsidy stated in plain terms. She also said younger borrowers want to talk and to understand what they are signing, and that word of mouth builds the business ^[15].

The limit on the regulatory tailwind is specific. Capital relief lowers what it costs to hold a loan and to carry servicing ^[1], but requirements under the Truth in Lending Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act remain a challenge ^[16]. Documentation cost is not a risk weight. Both banks also operate against fluctuating interest rates ^[17], and United's own description of mortgage revenue as its most cyclical line is the honest version of what a relationship strategy costs in a bad year ^[10].