First Internet Bank is shuttering its consumer mortgage business

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Steep declines in mortgage volume and the negative outlook for mortgage lending led the Indiana-headquartered digital bank to its decision

“While other lending lines have strong demand, the combination of housing prices, housing supply, economic uncertainty and interest rates have caused mortgage applications nationally to plunge to their lowest level in 26 years,” David Becker, chairman and CEO of First Internet Bancorp, told analysts in its fourth quarter earnings call last week.

First Internet Bank will end its direct-to-consumer operations in the first quarter of 2023 and shifts its focus to origination efforts on its floating rate loan products — most notably its commercial construction and small business lending — as well as its higher-yielding fixed rate programs, such as franchise finance.

The residential mortgage loan balance for First Internet was $383.9 million as of December 31, 2022, a 13.7% increase from the previous quarter and a 51.4% jump from the same period in 2021. 

The home equity loans balance was $24.7 million in the fourth quarter of 2022, a 11.7% uptick from the third quarter and a 40% increase from December 31, 2021.

First Internet Bancorp, founded in 1999 and headquartered in Indiana, is a bank holding company that operates First Internet Bank. Claiming to be the first state-chartered, Federal Deposit Insurance Corporation-insured (FDIC) institution to operate entirely online, the bank combines nationwide consumer, small business and commercial deposit base. 

Exiting the consumer mortgage business is expected to reduce total annual non-interest expenses by approximately $6.8 million while increasing annualized pre-tax income by approximately $2.7 million. About 80% of the benefit will be realized in 2023 — and 100% thereafter.

The firm estimates that it will incur a total pre-tax expense of about $3.3 million in the first and second quarters of 2023 due to its exit from the consumer mortgage business.

“The earnback in this decision will be between four and five quarters to exit a line of business that is otherwise forecast to remain subdued for the next three years,” Kevin Lovik, EVP and CFO of First Internet Bancorp, said in its earnings call. 

First Internet’s consumer mortgage business was expected to incur at least $6 million over the next three years for the bank, which helped lead to the company exiting the business line.

 “We probably spent the last 60 days doing all kinds of configurations of cutting back on sales, marketing efforts, staffing, trying to hold a shell together,” Becker said regarding the firm’s decision to close the business line rather than scaling back. 

A spokesperson for First Internet didn’t immediately return HousingWire’s request for comment on the layoffs.

“I’ve been around it now for close to 25 years. And I’ve seen that three or four cycles but this is by far the worst that I’ve seen in my lifetime, and probably the worst we’ve seen in the country in 40 to 50 years,” Becker noted. 

Mortgage rates fell as the banking crisis got worse and we may have found the bottom of seasonal housing inventory.