James Didden’s bank has never sold a mortgage.
Not to Fannie Mae or Freddie Mac. Not as part of a federally insured package. And definitely not to Wall Street.
“We like what we do; we like to follow through,” said Didden, president of National Capital Bank, which has operated in the Capitol Hill neighborhood since 1889.
Although about 90 percent of the mortgages written these days are backed by the federal government — mainly through Fannie, Freddie or the Federal Housing Administration, the other 10 percent are typically loans that are too large for the government programs to handle or ones that the lenders decide to keep on their books for whatever reason. These lenders include community banks like National Capital and credit unions, two types of institutions that have long embraced an old-fashioned, common-sense approach to mortgage lending.
The fact that many of these smaller institutions hold on to the mortgages they make offers some reassurance to borrowers spooked by the mortgage market’s unraveling in recent years. Some of these lenders also avoid computer-generated credit scores and other cookie-cutter requirements imposed on borrowers by the government’s big three. Instead, they take into account a potential borrower’s family history, spending habits and existing relationship with the bank, if there is one.
Greater flexibility
That’s not to say these banks aren’t tough. They still require hefty down payments and tend to deal only with top-credit borrowers. They also don’t have as much capital as the megabanks and therefore can’t pump out as many loans. But without the constraints of the government’s increasingly strict lending rules, they can afford to be more flexible when it comes to dealing with prospective borrowers.
“Community banks are in a unique position to determine who qualifies,” said Guy Cecala, publisher of Inside Mortgage Finance.
Didden and his brothers followed their father into a profitable family business, National Capital. In the late 1960s, Didden worked in the note department — what would be called loan servicing now. Desktop calculator at hand, he reviewed the monthly payment coupons customers sent in, figuring out and writing down the principal and interest paid.
“I knew the names of every mortgage we had in the bank, because I would have to post those payments once a month,” he said.
Of course, Didden said, everything is automated now. But the bank, which has assets of $334 million, still approaches lending the same way. “We haven’t changed our underwriting procedures in 30 years,” he said. “We’ve always done the same thing. We’ve always considered it to be prudent, basic banking.”
That underwriting doesn’t conform to the rules the federal entities lay down. The differences might seem small, but they can make a loan work for someone who doesn’t exactly fit the federal mold. For instance, National Capital doesn’t rely on FICO credit scores to determine creditworthiness. Instead, it pulls credit reports and the bank’s officers review them. “If there are any delinquencies on it, we talk to you about it,” Didden said.
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