Residential Mortgage Loans. We originate residential mortgage loans, most of which
are secured by properties located in our primary market area and most of which
we hold in portfolio. Residential mortgage loan originations are generally obtained
from our in-house loan representatives, from existing or past customers, through
advertising, and through referrals from local builders, real estate brokers and
attorneys, and are underwritten pursuant to Magyar Bank’s policies and standards.
We also originate home equity loans secured by residences located in our market
area. The underwriting standards we use for home equity loans include a determination
of the applicant’s credit history, an assessment of the applicant’s
ability to meet existing obligations, the ongoing payments on the proposed loan
and the value of the collateral securing the loan. The maximum combined (first
and second mortgage liens) loan-to-value ratio for home equity loans and home
equity lines of credit is 80%. Home equity loans are generally offered with
fixed rates of interest with the loan amount not to exceed $500,000 and with
terms of up to 30 years.
Generally, all fixed-rate residential mortgage loans are underwritten according
to Federal Home Loan Mortgage Corporation (“Freddie Mac”) guidelines,
policies and procedures. Historically, we have not originated a significant
number of loans for the purpose of reselling them in the secondary market. In
the future we may increase our origination and sale of fixed-rate residential
mortgage loans to help manage interest rate risk and to increase fee income.
We also offer adjustable-rate residential mortgage loans with interest rates
based on the weekly average yield on U.S. Treasuries or the London Interbank
Offering Rate (“LIBOR”) adjusted to a constant maturity of one year,
which adjusts either annually from the outset of the loan or which adjusts annually
after a one-, three-, five-, seven-, and ten-year initial fixed-rate period.
Our adjustable-rate mortgage loans generally provide for maximum rate adjustments
of 2% per adjustment, with a lifetime maximum adjustment up to 5%, regardless
of the initial rate. We also offer adjustable-rate mortgage loans with an interest
rate based on the prime rate as published in The Wall Street Journal or the
Federal Home Loan Bank of New York advance rates.
Commercial Real Estate Loans. Commercial real estate loans are generally secured
by five-or-more-unit apartment buildings, industrial properties and properties
used for business purposes such as small office buildings and retail facilities
primarily located in our market area. We generally originate adjustable-rate
commercial real estate loans with a maximum term of 25 years with adjustable
rate periods every five years. The maximum loan-to-value ratio for our commercial
real estate loans is 75%, based on the appraised value of the property.
We consider a number of factors when we originate commercial real estate loans.
During the underwriting process we evaluate the business qualifications and
financial condition of the borrower, including credit history, profitability
of the property being financed, as well as the value and condition of the mortgaged
property securing the loan. When evaluating the business qualifications of the
borrower, we consider the financial resources of the borrower, the borrower’s
experience in owning or managing similar property and the borrower’s payment
history with us and other financial institutions. In evaluating the property
securing the loan, we consider the net operating income of the mortgaged property
before debt service and depreciation, the ratio of the loan amount to the appraised
value of the mortgaged property and the debt service coverage ratio (the ratio
of net operating income to debt service) to ensure it is at least 120% of the
monthly debt service. We require personal guarantees on all commercial real
estate loans made to individuals. Generally, commercial real estate loans made
to corporations, partnerships and other business entities require personal guarantees
by the principals. All borrowers are required to obtain title, fire and casualty
insurance and, if warranted, flood insurance.
Construction Loans. We also originate construction loans for the development
of one-to four-family homes, apartment buildings and commercial properties.
Historically we also originated construction loans for the development of town
homes and condominiums. Construction loans are generally offered to experienced
local developers operating in our primary market area and to individuals for
the construction of their personal residences.
Commercial Business Loans. We make commercial business loans primarily in our
market area to a variety of professionals, sole proprietorships and small and
mid-sized businesses. Our commercial business loans include term loans and revolving
lines of credit. The maximum term of a commercial business loan is 25 years.
Such loans are generally used for longer-term working capital purposes such
as purchasing equipment or furniture. Commercial business loans are made with
either adjustable or fixed rates of interest. The interest rates for adjustable
commercial business loans are typically based on the prime rate as published
in The Wall Street Journal.
Home Equity Lines of Credit and Other Loans. We originate home equity lines
of credit secured by residences located in our market area. The underwriting
standards we use for 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, the ongoing payments on the proposed loan
and the value of the collateral securing the loan. The maximum combined (first
and second mortgage liens) loan-to-value ratio for home equity lines of credit
is 80%. Home equity lines of credit have adjustable rates of interest, indexed
to the prime rate, as reported in The Wall Street Journal, with terms of up
to 25 years.