Chittenden/People's Bank Mortgages Go South – to Florida

Although regulators say that Vermont’s mortgage market remains stable, some 9000 home-owners in the state were recently told, without explanation, that their mortgages would no longer be handled by Chittenden Bank [1]. Their loans have been transferred to a Florida-based company that does business mainly on the Internet.

The switch shows that even Vermont is not immune to the churn in the U.S. banking sector.

The transfer of the mortgage-servicing operations has its origins in last year’s takeover of Chittenden by People’s United Bank [1], which describes itself as the largest New England-based banking company. Headquartered in Connecticut, People’s purchased Chittenden and six other banks owned by the 105-year-old Burlington company in a $1.9 billion deal. Chittenden continues to employ approximately 600 Vermonters at about 50 branches around the state. Its redesigned logo, rolled out just weeks ago, designates Chittenden as a division of People’s.

In an unannounced transaction completed last month, Chittenden’s owner sold the servicing rights for a total of 15,000 loans to EverHome [2], a financial-services company with indirect connections to Vermont. EverHome is a division of EverBank, an electronic financial firm born in a converted barn in Stowe in 1999; it is now based in Jacksonville, Florida.

There’s nothing unusual or alarming about the sale of mortgage-servicing operations, says Vermont Banking Commissioner Tom Candon. “It’s a universal practice for a bank to package mortgages and sell them to an investor.”

And while the chaos in the U.S. economy has made such deals “more difficult,” Candon says that demand is still strong for “seasoned mortgages” — those that borrowers have been faithfully paying off for several years.

Vermont’s own mortgage market remains insulated from the turmoil that has upended much of the national industry, Candon adds. Banks based in the state also continue to be financially secure, he says.

EverHome President Mike Koster offers reassurances as well, describing the purchase of servicing rights for 9000 Vermont mortgages as “standard operating procedure” for his company. “This is absolutely not a reflection of a lack of economic health,” Koster says. He notes that EverHome, a $6.5 billion company, owns servicing rights to some 380,000 mortgages nationwide.

People’s United Bank spokeswoman Valerie Carlson affirms that this was no distress sale. “As we did a regular review of our mortgage business and the industry at large, we decided we should exit this aspect,” Carlson says.

She points out that Chittenden will continue to originate mortgages and other loans in Vermont. People’s did not sell the mortgages themselves, which are held by Fannie Mae and Freddie Mac, but only the monthly billing and customer-service operations, Carlson notes.

Koster says the 9000 affected borrowers in Vermont will likely experience little difference as a result of the shift in service providers. EverHome does offer some technical advantages that Chittenden did not make available, such as 24-hour voice information on loan status, Koster says.

One potential drawback, he adds, is that it will no longer be possible for the former Chittenden customers to make mortgage payments at a local branch of the bank. But Koster says only a small proportion paid that way.