Life’s Lessons Learned #47: Mortgage Loans
The mortgage department was an institution within an institution. The history of banking in Lancaster was deeply rooted in agricultural, commercial and mortgage banking. A mortgage was, for many customers prior to the establishment of the installment loan department in the late 1950s, the only type of bank loan they experienced. At the time that I arrived in the mortgage department, the mortgage industry was undergoing radical change. Historically, people needed a substantial down payment to qualify for a home mortgage. The great depression had led to widespread mortgage failures, and the reluctance of banks to lend money. It was common for banks to require a minimum down payment of 25% or more, and people saved for their down payment. By the time I arrived, however, loans for up to 95% were being written. This was accomplished through an insurance program provided by the Mortgage Guarantee Insurance Corporation or MGIC (otherwise know as magic loans).
An entire class of institution had arisen then to address the need for home mortgages – savings and loan institutions (S&Ls) At that time S&Ls could only offer savings accounts and home mortgages. Then they became more like banks, as they were permitted to offer checking accounts (demand deposit accounts) and, the S&Ls were permitted to pay interest on the balances! This made mortgage lending far more competitive.
LCFNB’s mortgage department was small. There were two lending officers, John Davis and Don Derstler, and two support personnel, Helen Nolt and Joyce Biechler. Don was relatively new in his position. While I was the bank’s second management trainee, Don had been the first. John Davis, on the other hand, was close to retirement, and had spent his entire career with the bank. He had joined the bank as a teller after graduating from Franklin & Marshall, and worked his way up to Vice President. John was quite conservative in his approach to lending and, for example, practiced redlining with Lancaster’s minority neighborhood. At the time I was wearing wire-framed glasses (as they were then popular) and I remember kidding him that his own old-fashioned wire-framed glasses were now back in popularity. He, quite seriously, pointed out to me that his only had the wires on the top, were not a fad, and were proper and in good taste.
Joyce Biechler was the daughter of the president of the Conestoga National Bank, an LCFNB competitor. Joyce was about my age, and had recently undergone a divorce. She was having some short-term personal financial problems, and in our discussions she told me that she wanted to sell her engagement ring. It was a substantial, 1.5 carat, pear-shaped, diamond ring with two baguettes, and she was asking $2,000 for the ring. I took the ring to a local jeweler, who I knew and trusted, for his opinion. I remember him making me promise, before he would look at it, that I would only buy the ring if he advised me to do so. After examining the ring he said that if I didn’t want to buy it, he would. I wasn’t even dating anybody at the time, but I applied for a loan from the bank, bought it, and put it into a safe deposit box. More about this ring in a later blog.
Mortgage lending was, at that time, going through significant changes. Shortly after World War II the United States made the decision to encourage home ownership. Tax laws were changed, and VA and FHA (government guaranteed) loans were common by the late 1960s. With the advent of consumer protection legislation and mortgage guarantee insurance, loan settlements and the necessary paperwork had become complex. My training included learning: bank mortgage lending policy, how to take a mortgage application, how to verify the information in the application, knowledge about the mortgage documentation, and the property appraisal process. While I was not allowed to actually take an application, I did sit in on and observe most of the applications taken while I was in the department. I also helped prepare documentation for, and then attended, closings with either John or Don.
Later, while covering for our Wheatland branch manager’s summer vacation, I was allowed by John to take a mortgage application. This was a shocker throughout the bank as I was the first person, outside of the mortgage department, to do so. I called John to tell him that I had a customer that wanted to apply for a mortgage, and to schedule an appointment for the customer at the main office. John just said, “You know how to do it. Take the application and send it in.” I was greatly honored by his trust in me. Several years later, when I was working in the main office as a Commercial Loan Officer, and both John and Don were in the hospital for surgery, I was put in charge of the mortgage department until they were well enough to return.
During, my stay with the mortgage department I assisted in the computerization of the department’s accounting system. This involved a time period during which parallel bookkeeping was maintained. My next training assignment was with auditing, where I was of significant help in explaining the new mortgage bookkeeping system.