One- to Four-Family Residential Real Estate Lending. We also make loans to
investors for the purchase and refinance of one- to four-family residential
properties that are not owner-occupied, which are described below under “One-
to Four-Family Investment Property Loans”.
We sell a portion of our conforming one- to four-family mortgage loans with
terms of 15 years or more in the secondary market. We determine the amount of
such loans that we sell based on interest rate risk and balance sheet considerations.
During recent years, we have sold substantially all of such loans, although,
depending on market conditions, we may not do so in the future.
Generally, one- to four-family residential mortgage loans secured by owner-occupied
properties are originated in amounts up to 95% of the lesser of the appraised
value or purchase price of the property, with private mortgage insurance required
on loans with a loan-to-value ratio in excess of 80%. On occasion, borrowers
have combined a first mortgage loan and home equity loan with a combined loan-to-value
ratio of up to 90% to avoid the need for private mortgage insurance. Fixed-rate
one- to four-family mortgage loans generally are originated for terms of 15
to 30 years. Generally, all fixed-rate residential mortgage loans are underwritten
according to secondary market policies and procedures, which allows us to sell
the loans in the secondary market, consistent with our asset-liability management
and portfolio needs.
We also offer adjustable-rate mortgage loans for owner-occupied one- to four-family
properties. These loans are generally nonconforming, including loans for amounts
above the lending limit for conforming loans (“jumbo loans”). Our
typical adjustable rate loan for owner-occupied one- to four-family mortgage
loan has a competitive initial rate that typically resets at an applicable margin
over the 1 year treasury index after 5 years (some loans reset after 1, 3 or
10 years), with a maximum rate adjustment of 2% per adjustment, and a lifetime
maximum adjustment of 6% above the initial rate. Our owner occupied adjustable
rate loans do not have a floor. Our adjustable-rate mortgage loans amortize
over terms of up to 30 years. During the fiscal years ended September 30, 2015
and 2014, $8.4 million and $4.1 million of the owner-occupied one- to four-family
mortgage loans that we originated had adjustable rates, respectively.
Virtually all of our one- to four-family residential real estate loans are secured
by properties located in our primary lending area, which we define as Dane County,
Wisconsin and contiguous counties.
Although adjustable-rate mortgage loans may reduce to an extent our vulnerability
to changes in market interest rates because they periodically reprice, as interest
rates increase the required payments due from the borrower also increase (subject
to rate caps), increasing the potential for default by the borrower. At the
same time, the ability of the borrower to repay the loan and the marketability
of the underlying collateral may be adversely affected by higher interest rates.
Upward adjustments of the contractual interest rate are also limited by the
maximum periodic and lifetime rate adjustments permitted by our loan documents.
As a result, the effectiveness of adjustable-rate mortgage loans in compensating
for changes in general interest rates may be limited during periods of rapidly
rising interest rates.
One- to Four-Family Investment Property Loans. We originate loans on one- to
four-family investment properties. The subject properties are non-owner occupied
and generally under a business name or in the name of an individual who owns
more investment property than what is allowed under guidelines set by government-sponsored
enterprises.
Our one- to four-family investment property loans are generally fixed rate
balloons or adjustable rate loans. Adjustable rate loans have a competitive
initial rate that typically reset to an applicable margin over the 1 year treasury
index after 5 years (some loans reset after 1, 3, or 10 years), with a maximum
rate adjustment of 2% per adjustment, and a lifetime maximum adjustment of 6-8%
above the initial rate. Our adjustable rate one- to four-family investment property
loans generally also have a floor, which currently is about 4%. Adjustable rate
loans may have terms from 10-30 years, and are fully amortizing. Our fixed rate
balloon loans for one- to four-family investment property typically have five
year terms and amortize over 30 years.
We generally target one- to four-family investment property loans with balances
up to $750,000.
Commercial and Multi-Family Real Estate Lending. We offer commercial real estate
and multi-family real estate loans, which provide us the opportunity to enhance
the yield and reduce the term to maturity of our loan portfolio.
Our commercial and multi-family real estate loans are generally fixed rate balloons
or adjustable rate loans. Adjustable rate loans have a competitive initial rate
that typically resets to an applicable margin over the 1 year treasury index
after 5 years (some loans reset after 1, 3, or 7 years), with no limit on adjustments.
Adjustable rate loans may have terms from 10-30 years, and are fully amortizing.
Our fixed rate balloon loans for commercial and multi-family real estate typically
have five year terms and amortize over a period of up to 30 years.
Home Equity Loans and Lines of Credit. We also offer home equity loans and
home equity lines of credit secured by owner-occupied one- to four-family residences.
We intend to increase our portfolio of home equity loans and lines of credit
by expanding balances on current low and no balance loans and lines of credit,
as well as offering new home improvement loans to homeowners who are deferring
new home purchases. The underwriting standards utilized for home equity loans
and home equity lines of credit include a determination of the applicant’s
credit history, an assessment of the applicant’s ability to meet existing
obligations and payments on the proposed loan, and the value of the collateral
securing the loan. Home equity loans are offered with fixed rates of interest
with terms up to 5 years. Loan-to-value ratios are generally limited to 80%
when combined with the first security lien, if applicable. Our home equity lines
of credit have five-year terms and adjustable rates of interest which are indexed
to prime rate as published in the Wall Street Journal. Home equity lines of
credit have a maximum interest rate of 18%, and no minimum interest rate.
Commercial business loans generally have a greater credit risk than one- to
four-family residential mortgage loans. Unlike residential mortgage loans, which
generally are made on the basis of the borrower’s ability to make repayment
from his or her employment and other income, and which are secured by real property
whose value tends to be more easily ascertainable, commercial business loans
are of higher risk and typically are made on the basis of the borrower’s
ability to make repayment from the cash flow of the borrower’s business.
As a result, the availability of funds for the repayment of commercial business
loans may be substantially dependent on the success of the business itself.
Further, the collateral securing the loans may depreciate over time, may be
difficult to appraise and may fluctuate in value based on the success of the
business. We seek to minimize these risks through our underwriting standards.
Consumer Loans. To a lesser extent, we also offer a variety of other consumer
loans to individuals who reside or work in our market area, the majority of
which are student loans or loans secured by passbook savings accounts and other
collateral. Consumer loans generally have greater risk compared to loans secured
by one- to four-family residential real estate loans.