Why is a Texas bank returning to the mortgage business after 20 years?

After 20 years in the residential mortgage business, San Antonio-based Frost Bank ( CFR ) is relaunching after the housing market experienced its toughest year in more than a decade.

“We had a lot of customer demand for it,” Frost Bank CEO Phil Green told Yahoo Finance. “It was a time when we could see the demand was there … and we thought it would be a good asset class for us for the long term.”

After high borrowing costs put many first-time buyers out of the market, demand for homes has slowly started to pick up.

Signing contracts for the purchase of previously owned homes rose 2.5% in December from the previous month, ending a six-month slide. New home sales also rose 2.3%, with the average sales price of new homes in December at $442,100.

“I see long-term upside in Texas…[and] Green, in short, said bluntly. “That means a lot of people in the state who are going to buy a home can help.”

In 1998, the bank’s loan portfolio had grown to about $415 million in outstanding home loans, accounting for 11.4% of its book, according to the San Antonio Express-News. Two years later, the bank stopped issuing housing mortgage loans.

So far, two home loans have been closed through the employee-only mortgage pilot program. After a short trial, the mortgage offer will be made available to existing customers.

Green expects the program to be launched “within a few quarters.”

“We all want people’s first experiences with it to be great,” he said. “The last thing we want is for people to think we have a complicated system that we don’t have the support of the realtor community for. [and] Not being able to do these things that we want to do for customers.”

Despite the cool housing market, the biggest benefit of Frost’s relaunch has been “downsizing.” [refinance] action,” Green said.

“[This] It gave us a great talent pool to build this organization from the ground up,” he said.

The latest data released by the Mortgage Bankers Association last week showed that refinancing activity was down 76% from a year ago.

When Frost originally decided to get out of the mortgage origination business, the technology was outdated and the customer experience was affected. But the industry has evolved since then, pointing to Greens as an opportunity to better scale operations.

Meanwhile, the bank has grown its presence in several major Texas cities, including 24 branches in Houston, eight more branches in the next two years, and 30 branches in the Dallas area.

Austin, Texas/USA – Austin, Texas skyline with Frost Bank Tower.

Collapse of the mortgage team

As the housing market slows, many banks are stepping back from the business. Or at least bring back the number of workers exposed to the industry.

JPMorgan Chase, for example, cut hundreds of jobs in its mortgage division earlier this month as mortgage originations fell 60% last year as interest rates rose, according to Bloomberg.

And the firm is not alone, as Wells Fargo, Citi and USAA have also begun cutting hundreds of jobs in their mortgage units as higher interest rates dampen demand for home loans and refinancing.

For Frost Bank, the firm has already hired about 80 loan officers and plans to expand its operations.

“We really have the ability to create deeper relationships with our customers than ever before,” Green said.

Dani Romero is a reporter for Yahoo Finance. Follow him on Twitter @daniromerotv

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