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Bank of Baltimore defends home-equity loan transfer program


Some in the industry characterize the practice as business raiding. But the Bank of Baltimore defends its aggressive campaign to persuade customers to transfer their home-equity loan balances to the bank from other institutions and says it's been very effective.

"It's been a huge success," says Frank Rosenberger, the bank's vice president for consumer lending.

Although Mr. Rosenberger declined to quantify results of the program, he says that the bank has refinanced a substantial number of home-equity loans originated by other institutions and that the program, begun in February, has been lucrative.

"It's a profitable portfolio. We can get large, outstanding balances in a very short period of time, and the delinquency is very low," Mr. Rosenberger says. "And the best security we can have on a loan is someone's home."

The Bank of Baltimore home-equity loan transfer program, pitched through newspaper and radio advertising, is basically a loan-refinancing program designed to convince borrowers with outstanding balances of $10,000 to $100,000 to switch.

"If your bank lets you down, call us up," goes the pitch associated with the bank's advertising campaign.

Those who agree to transfer their balances to the Bank of Baltimore are charged interest at the rate of 1 percentage point over the prime rate. And the bank picks up all closing costs related to the loan on an upfront basis.

The bank will even cover charges related to the application of someone who is ultimately turned down for the refinancing program.

"Customers are eager to pursue the loan because it's very economical to obtain and because a home-equity loan or second mortgage are the only tax-deductible consumer loans you can get," Mr. Rosenberger says.

At Carrollton Bank of Baltimore, Senior Vice President Dallas Arthur allows that, under the Bank of Baltimore program, "the consumer can only be a winner" -- assuming he has been carrying a home-equity loan at a rate of interest higher than 1 percentage point above prime.

Carrollton Bank has lost home-equity loans to the Bank of Baltimore in recent months, even though Carrollton is now charging 1 percentage point above prime, according to Mr. Arthur.

The loans it lost were those originated at Carrollton's previously higher rate, the bank official explained.

The Bank of Baltimore is the only major home-equity player in the Baltimore market that is actively pursuing home-equity balance transfers.

And while other institutions, such as Carrollton, are willing to refinance home-equity loans and second mortgages, they don't attempt to bring in customers by promising to pay closing costs on an upfront basis.

"Any relationship we establish with the consumer, we like to establish for a long period of time," says Mr. Arthur, who says an aggressive home-equity loan transfer program is not generally associated with customer longevity.

Given rebates and other inducements available in the marketplace, lending institutions generally don't make money on home-equity loans unless they hold them for at least three years, Mr. Arthur says. For that reason, lenders don't like their loans to be lost to another institution, especially in the early stages.

But Mr. Rosenberger describes the Bank of Baltimore's aggressive transfer program as a legitimate business strategy that should be acceptable to anyone in the local business community.

"They're all big players and big boys. And they can take their licks," he says.

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