Pacific Trust Bank is a federal savings bank in Chula Vista, Calif., outside San Diego. It began in 1941 as Rohr Employees Credit Union and changed to a bank charter in 2000.
What is a Green Account?
HG: A Green Account is a mortgage product that has been used successfully in Europe and Australia for a long time. It combines a mortgage with elements of a line of credit, a checking account and a savings account. Essentially the Green Account is a mortgage with a checking account attached to it. However, the customer can make deposits which will decrease the balance, as well as make withdrawals, which increase the balance. Savings go immediately to lower the mortgage principal, thus lowering interest payments for the owner. Withdrawals, of course, reverse that but if a person was getting 3% on savings but could lower principal on a 6% mortgage, he or she is benefiting financially. Withdrawals are possible up to a certain credit limit. With a Green Account, a customer does not need any other checking or savings account. Direct deposit, ATM cards and the normal features of savings and checking accounts are included.
Flexibility is a great feature of the Green Account. Customers can place more money into the account when they have the ability to do so, and to make an interest-only payment when they cannot. The Green Account is particularly good for small businesspersons, the financially educated, the self-employed or anyone with an unsteady stream of income. At Pacific Bank, the term on the mortgage is 15 years.
Why did you develop the Green Account?
HG: Like many others in the financial services field, five or six years ago we saw mortgages becoming commodity-like products. Our competitors were the very large Washington Mutual, IndyMac and others; they were writing mortgages like crazy, selling them and writing more, at what seemed very attractive terms to customers. Loan-to-value ratios were high and underwriting quick and lose. Relationships were much less favored than volume.
Here at Pacific Trust Bank we are home lenders; 85% of our portfolio was in home loans. About a third of our loans were Option-Arms. If mortgages continued to be commodity-priced, we could see we would be undercut unless he found out a way to build relationships and develop a product that was different and head-and-shoulders above the others. We also looked for a product that required expertise to administer and that was tailor- made for a portfolio lender. This kind of account seemed like the right solution. We trademarked the name Green Account and began offering the mortgage in our market.
We liked what we saw in this kind of product. We felt we could not only help people save money through the course of a mortgage but also build strong relationships with them.
When did you start them? How did you develop it?
HG: We began to think about them in 2005 and wrote the first ones in 2006. FISERV deserves a lot of credit; we wouldn’t have the product were it not for them. They waived the development costs so long as they could then market the software to other institutions.
How have the Green Accounts been doing for you?
HG: Quite well. In the last quarter we replaced all but $38 million of our Option-ARMs with Green Accounts. We now have $200 million in Green Account loans. Green Accounts are perfectly suited to relationship lenders such as we are. We have never lost a penny on any of our Green Accounts.
Can you sell the mortgage portion of the Green Accounts?
HG: You can, but we don’t. We hold onto them. Of course you can sell the balance portion but you cannot sell the servicing – and you don’t want to; you have the checking, savings, and credit line features to service. That’s the strong relationship.
Are you finding imitators?
HG: CMG Mortgage is writing this kind of mortgage/account. There are some others.
Who is interested in this kind of account? Are they first-time buyers?
HG: No. We thought they would be, but we’ve found that the first-time buyers are now looking more toward fixed payments and high loan-to-value. We are finding that the kinds of customer converting to a Green Account are the customers who are more financially savvy; they see how they can save money and gain flexibility. Borrowers will have to be somewhat disciplined with this kind of account so that they pay off their mortgage in a timely manner; for the ones who do, there are large savings. Customers opening Green Accounts also understand – and perhaps appreciate and need – the flexibility that Green Accounts offer. When times are good they can work at paying down their mortgages; when times are tight they can lower their payments or even draw on what they had previously deposited.
By the way, many of our referrals are coming from financial planners; these are people who see the value in Green Accounts and are recommending them to their clients.
Are you finding that people are using the Green Accounts responsibly?
HG: Yes. That is what we are seeing.
So things have been working out well?
HG: Yes. This is a wonderful product for building relationships. It wraps up much of a customer’s finances into one bundle. People really appreciate that. Life is easier for them, and, of course, these customers really appreciate the advantages the Green Account gives them. Meanwhile, the institution that has given them the Green Account now is their primary financial institution.