Colonial Savings to drop originations, refocus on servicing, banking

After making home loans for 70 years, a Fort Worth, Texas-based thrift plans to exit the mortgage origination business. 

The $1.1 billion-asset Colonial Savings announced Thursday it will cease originating mortgages and focus instead on its servicing and community banking businesses. 

"With the changing landscape of the mortgage market, characterized by a decline in originations amidst rising interest rates, Colonial has made the difficult decision to exit the mortgage origination business," President David Motley wrote in a statement to American Banker. 

Many mortgage lenders have been shutting down operations or engaging in mergers and acquisitions following a rapid rise in rates over the past year. The resulting increase in borrowing costs has diminished loan volumes and challenged industry profitability.

According to the Mortgage Bankers Association, the dollar volume of mortgage originations during the quarter ending March 31 was $333 billion, down 52% for the same period in 2022. MBA is projecting mortgage originations to begin rebounding in the second half of 2023, but its projection of $1.8 trillion in full-year originations represents a 24% year-over-year decline. 

Colonial expects to shut down originations July 31. According to Motley, Colonial will retain its servicing business, which currently stands at $20 billion and serves more than 130,000 people. It will also focus on its community bank, which operates six branches in Fort Worth, Arlington, Colleyville and Lewisville. 

"By nurturing our relationships and reinforcing our commitment to the local community, we are poised to further strengthen our position as a trusted financial partner," Motley wrote. 

Colonial's roots stretch back to 1952, when its late chairman emeritus James S. "Jimmy" DuBose founded Fort Worth Mortgage Corporation to capitalize on the booming post-World War II housing market in Fort Worth and the North Central Texas region. The business grew steadily, acquiring Colonial Savings & Loan of Lewisville in 1971.

Colonial Savings, which had about $5 million in deposits when Fort Worth Mortgage Corp. acquired it, reported more than $1.1 billion in assets and $579 million of deposits as of March 31. But with a balance sheet heavily invested in mortgage loans, which comprised about 78% of its $765 million loan portfolio, profits have been harder to come by in recent months. Colonial, which earned $10 million in 2021, lost $4.9 million for the three months ending March 31. 

Motley, who has served as Colonial's president since 2008, was the MBA's chairman in 2018.

"We are deeply grateful to our employees, customers and partners for their unwavering support and loyalty throughout the years," Motley said Thursday in a press release. "It is with a heavy heart that we make this difficult decision, but we firmly believe it is the right course of action for the company's future."

John Reosti contributed to this story.