With interest rates low, many financial experts have noticed a high volume of clients refinancing mortgages or even buying their first home. While it is unclear how long interest rates will remain low, some experts see this as an opportunity to foster new relationships and retain clients rather than making a one-time deal. The integration of technology in the loan process has helped bankers streamline the high volume of loan requests and make time to personally advise clients.
The rapid digitization of businesses has required banks to adapt with their clients’ changing business models. As local businesses shifted to socially-distanced operations and pivoted services, they required the financial support of commercial banks to meet those needs. Additionally, local bankers spoke to a myriad of ways they have helped local businesses one of which has been through the federally funded PPP loans.
In this special report, we hear insights and economic outlooks from industry leaders in San Diego.
EVP, Chief Operating Officer
Bank of Southern California
One challenge that is currently facing lenders that participated in the SBA’s Paycheck Protection Program (PPP) is pending legislation that would streamline the forgiveness process for borrowers that received loans of $150,000 or less. As Congress remains deadlocked on a COVID-19 relief bill, and with only a short time left to act, financial service organizations across the nation are coming together and urging Congressional leaders to support House and Senate bills to forgive PPP loans under $150,000. PPP forgiveness legislation (S. 4117 and H.R. 7777) already has bipartisan support and could be passed on its own. I encourage all business owners to contact their local lawmakers and urge them to pass standalone PPP forgiveness legislation. This would be a significant win for both business owners and banks by providing a streamlined version of the forgiveness process.
As we look ahead, we anticipate a second round of PPP funding made possible by the Health, Economic Assistance, Liability Protection and Schools (HEALS) Act. This Act aims to provide an additional $190 billion in funding for the program. As with the three previous rounds of PPP lending, the participation of banks will be key to the program’s success. The challenge for many banks is to find the resources along with the capacity to take on these loans and to not be turned off by complex loan terms. Historically, community banks have performed well, with many large banks opting not to participate in additional rounds of PPP funding. It will be interesting to see if banks continue to participate and support small businesses in need, in the event the HEALS Act is ultimately passed by Congress. Bank of Southern California is ready to assist businesses in need when the new program becomes available.
Senior Vice President
Greater San Diego Division Director
Fluctuating interest rates are a natural part of our U.S. economy and that’s understood in the finance industry so we account for it. At Banner, our practices don’t change as rates move down or up. Different products are more advantageous to clients based on a changing rate environment—fixed rate loans vs. variable rate loans for example—our bankers are well versed in how to help clients maximize the benefits in every rate environment. Because we take a consultative approach with our clients, they come to us to discuss their long and short-term goals and we share the pros and cons of different strategies, allowing them to make the educated decisions that benefit them.
It certainly is a busy time for mortgage loans right now. We have a seasoned team who has been through many cycles like this so they understand the urgency buyers have to move quickly. If someone is interested in a new mortgage or refinancing, we recommend they talk with one of our experienced lenders—they don’t need to come to us just when they’re ready to apply. We can help them run the numbers and look at the options prior to making a big decision like this. For homebuyers who prefer an online experience, we offer an online application at bannerbank.com and the option to sign many of their loan documents digitally in this time of social distancing.
We’re here to help our clients over a lifetime, and that naturally includes some ups and downs so we want to hear from them if they are facing challenges—that’s often when we can offer the most help. We know all the options available in any given situation so when a client trusts us to share what they’re going through we do all we can to lean in with options like loan deferments, no-interest loans to wildfire victims, and increased ATM withdrawal options and other special offerings during the pandemic. Our motto is when our actions are guided by doing the right thing we can never go wrong.
Senior Vice President, Division Executive for Consumer Lending
Bank of America
Today’s historically low interest rates benefit existing homeowners ready to refinance and prospective homebuyers looking to purchase. Our recent Homebuyers Insights report found that nearly 90% of first-time buyers are motivated to purchase a home, and more than half plan to accelerate their home purchase timelines now. Half of San Diegans have looked at real estate listings recently, outpacing homebuyers in other parts of the U.S. So, despite these difficult times exacerbated by rising home prices and low inventory, San Diegans are still motivated to buy their first home. The low interest rates improve affordability, especially when combined with resources for upfront costs like Bank of America’s down payment and closing cost grants available in San Diego.
Technology adoption by users has fast evolved, especially during the current work-from-home environment as significantly more clients use mobile and digital technology capabilities to meet their financial needs. Our mobile banking app allows customers to see the exact status of their mortgage loan application in real time. Our Digital Mortgage Experience puts the homebuyer in the driver’s seat to make the entire loan application process quicker and easier. Homebuyers can upload documents, view exactly what tasks need to be completed and see their loan status. It even prefills many fields for existing clients to save time for both the user and the lending team working on the loan.
For refinancing, take advantage of digital applications – it’s easy and lending officers are available at any point in the process to discuss options and answer questions. Work with them to ensure refinancing is beneficial for you, whether it’s to lower your interest rate, change the loan term, or save on the lifetime cost of your loan. Our industry-leading technology, combined with this “high tech, high touch” approach has been well received during today’s challenging circumstances.
The most exciting development recently is the many resources that buyers have access to – we now have grants to help with down payment and other upfront costs, as well as low- down payment mortgages. Even prospective buyers who aren’t ready today can actively search listings and take advantage of free tools like our First-Time Homebuyer Online Edu-Series, which walks the user through the process of financing and buying a home.
Thomas V. Wornham
We all started 2020 cautiously, knowing we were getting towards the end of a ten-year growth cycle and it was a presidential election year. COVID-19 was on our radar in January, but it was still “new news”. By February, we pulled our pandemic plan off the shelf and began implementing it. CalPrivate Bank had 84% of our team members working from home by mid-March. We were and remain committed to keeping our team members, clients, vendors and partners safe.
CalPrivate Bank and our Private Business Capital Team began putting the process in place to insure we could use our SBA preferred lender status to be an effective, early PPP loan provider. We provided our first PPP loan approval on April 5, 2020 at 5:30 a.m., the day the program opened. Ultimately, we would originate 616 PPP loans totaling $159 million in total commitments. These loans helped hundreds of businesses stay in business and saved thousands of jobs.
There is little doubt that COVID will continue to be a driving factor in our economy for the next year. We anticipate our clients’ needs will continue to change as their business models change. There appear to be more questions than answers on when long term stability will return to our economy. Some sectors will return faster than others. Some government agencies will allow more rapid recovery than others.
The future success of all banking relationships will continue to be driven by communication, cooperation and collaboration between bankers and their clients. CalPrivate Bank’s success continues to be rooted in relationships, solutions and trust. We remain proud to be headquartered in La Jolla and excited to have Coastal Southern California as our market area.
EVP Corporate Banking Regional Director, Southwest Region
Now that we’ve crossed the six-month marker since the pandemic began, we’re seeing both the challenges and the opportunities for banks a little more clearly. On the opportunity side, it’s been remarkable to see how local businesses continue to pivot and adapt to the disruption. Umpqua recently conducted a nationwide business resiliency study that included insights from San Diego businesses and found that roughly two-thirds or more of businesses here are making significant changes to products and services, digitizing their customer experience and automating more as a result of the pandemic. We’ve seen these strategic shifts first-hand with our own customers. One business we support quickly pivoted to delivering products door-to-door because people stopped going to stores. This required a complete change to its marketing platform — from an in-person model to one utilizing social media to boost sales. Another customer, a dental manufacturer, pivoted its strategy and started making personal protective equipment for hospitals.
These types of shifts are indicative of what’s happening across many industries and all sizes of business, and they require strategic financial solutions and advice from a trusted banking partner. In this way, banks have a real opportunity to develop even deeper relationships with customers, which is critical given the challenges of the current historically low interest rate environment.
The industry consensus is that interest rates will stay low until the end of 2023, which of course shrinks banks’ net interest margin on loans. Banks that focus on developing full banking relationships will be able to help companies with their strategic shifts needed to stay competitive, while supplementing a low net interest margin on the loan side with fee income from services like treasury management, international banking, foreign exchange, derivatives and capital markets, to name a few.
For businesses, especially those adversely impacted by the current economic disruption, refinancing in the low interest rate environment makes a lot of sense. Those seeking to refinance should know that banks will be focused on earning their entire banking relationship, not one-off, credit-only transactions. In this sense, it’s actually a good time for businesses to evaluate their current banking relationship to make sure their bank is equipped with a full suite of products and has an approach to relationship banking that can support where their business needs to go. When working with banks, businesses will need to present solid analytics and sound projections. These have become even more important to the evaluation process for banks because there’s so much uncertainty still with COVID-19.
Head of Consumer Bank
As a result of a significant drop in interest rates, 30-year fixed rate mortgages can be obtained below 3%. Although the Federal Reserve has promised to keep short-term interest rates low for several years, 30-year mortgage rates depend upon long rather than short-term rates which increase the difficultly of forecasting future mortgage rates. As a result of mortgage rates reaching record lows, we have seen very strong demand for customers looking to refinance their mortgage or purchase a new home. We have always been a technology leader in digital mortgage lending and we also provide our customers the opportunity to consult with seasoned loan officers who are available telephonically. Since we never relied on branch-based delivery models, the current environment has not impacted our ability to deliver a strong customer experience. Our focus on customer service has resulted in high customer satisfaction ratings with a lender rating of over four and a half stars out of five on Zillow.
Consumer behavior has significantly changed in 2020 and the market has moved to favor our digital business model because it is both more convenient and cost-effective. We are continuing to make significant investments in technology that enable us to improve our customers’ digital mortgage experience. People looking to purchase a new home or refinance their existing mortgage can check rates in real-time on our website and decide to lock their rate in at their convenience. Customers can complete our application in 10 minutes from their mobile phone or desktop computer, eliminating the need to travel to a branch and speak with a loan officer, unless they desire to do so. Finally, our digital mortgage process uses an automated underwriting system to review loan terms and conditions. What this means is that in many cases, we’ve been able to waive the home appraisal. This not only saves time and money but has also allowed us to serve eligible customers who do not want an appraiser on their property amid heightened concerns over COVID-19.
In terms of resources, we have been able to keep up with increased mortgage demand through the automation of workflows creating operational efficiencies, and we have reallocated resources internally. We have also significantly increased our staffing in anticipation of continued mortgage demand for the next several years. We are currently hiring upward of 60 new team members in our residential mortgage business in San Diego, including mortgage loan closers, senior loan processors, funders and mortgage loan originators.
Pacific Segment Head for Middle Market Banking
The Federal Reserve’s decision makers believe that the most appropriate action is to hold the federal funds rate target at the current 0-1/4 % level until 2023, given their expectations that unemployment won’t return to 4 % and inflation won’t reach 2 % until then. If the economy continues to rebound faster than the Federal Reserve anticipates, it may move rates up slightly. But the stance of policy likely is going to be quite stimulative (sic) for the next several years. The aim of the Federal Reserve’s policies are to restore the economy back to full health—where we were in February 2020, before the COVID-19 crisis. This should be very positive for overall business outlook here in San Diego.
Since the start of the pandemic, many of our San Diego clients have been able to manage their businesses entirely without printing a single document —something that a number of them didn’t expect would be possible prior to the pandemic.
It’s no surprise then that we’ve seen an acceleration in the digitization of managing finances this year. According to our 2020 Business Leaders Outlook Pulse Survey, 59% of business leaders have increased, or plan to increase, their use of digital banking and treasury tools to manage cash flow, send and receive payments, and streamline operations. We’ve worked with many businesses across California to activate e-signature capabilities, implement digital platforms for check printing and deposits to rapidly replace disrupted physical processes and sustain operational continuity.
Many businesses are already managing finances digitally, and those that aren’t are realizing they will have to implement new forms of technology to remain competitive.
With the onset of COVID-19, companies rapidly transitioned their operations and staff into a remote and virtual-first terrain. This has contributed to a greater number of cybersecurity threats, particularly when it comes to business email compromise (BEC). Fraud continues to proliferate and BEC is among the most serious threats that businesses face, especially during times of crisis. We’ve seen a number of local companies targeted by cyber scams, making it more important than ever to have the right tools and procedures in place.
To help educate business leaders on how to prevent BEC and other types of fraud, we’ve created a microsite with helpful tips and resources. We also recently introduced a Resiliency Diagnostic Tool, which makes it easy for businesses to evaluate themselves across seven key areas – liquidity management, cash positioning/forecasting, fraud, access, technology, business continuity plan development and communication.
Chief Executive Officer
Torrey Pines Bank, a division of Western Alliance Bank
The year 2020 has indeed been a year like no other. At the onset of the pandemic, our industry faced a great deal of uncertainty as we attempted to predict how the economy would react. Moreover, as the recovery from the last great recession continued at a steady pace, with interest rates remaining at historical lows, the combination of volatile factors presented potential challenges never before seen in commercial banking. Now that we’re here in the third quarter, I feel a renewed sense of confidence in our bank’s ability to sustain our top-tier performance and continue to meet the needs of our business clients throughout Southern California.
At Torrey Pines Bank, our approach to navigating the uncertainty of 2020 has been guided by the same principles we have employed since our founding nearly 20 years ago. That is, we remain sharply focused on our client relationships so that we maintain a deep understanding of not only how their businesses have been impacted, but also how we can help them effectively navigate the changes in the economy and adapt to a more remote, socially-distanced reality. In addition to serving the ongoing loan and deposit needs of our clients, our local team of treasury management advisors has been ensuring that our clients have the tools, products and services at their disposal to conduct their businesses remotely.
Despite the uncertainty about when things will get back to “normal,” we continue to see promising activity within our customer base that suggests the business environment is improving, perhaps even more quickly than we initially anticipated it would. Our clients are continuing to borrow to finance new projects and new initiatives. New clients throughout San Diego and Los Angeles counties continue to turn to Torrey Pines bankers to discuss potential new relationships and how we can help their businesses grow.
Although COVID-19 has changed much about our daily lives and has impacted parts of the economy disproportionately, what remains the same is our commitment to helping our clients succeed in their endeavors to the best of our ability. We are privileged to serve the vibrant business community in Southern California, and hope you and your loved ones are healthy and safe.