Monte N. Redman is the president and chief operating officer...

Monte N. Redman is the president and chief operating officer of Astoria Financial Corp., parent company of Astoria Federal Savings. Credit: Newsday, 2008 / Jim Peppler

Residential mortgage lending has fallen sharply this year, but some Long Island banks say their business model of holding onto loans has proven more stable than bundling them into securities.

Lenders across the country originated residential mortgages totaling $302 billion in the first quarter, a $160-billion drop from the previous quarter and a low not seen since 2000, according to the Mortgage Bankers Association. The association projects mortgage originations will decline in 2011 to $1.05 trillion from $1.57 trillion last year.

"We're not seeing a slowdown," said Monte Redman, president and chief operating officer of Lake Success-based Astoria Financial Corp., the parent company of Astoria Federal Savings. Redman said that as a portfolio lender -- a bank that makes mortgages and holds them -- they aren't affected by some of the difficulties that have hurt the market for mortgages that are originated to be sold and packaged as securities.

"As a portfolio lender we're on target about where we were the last couple years," he said. Redman said the bank made about $700 million of residential mortgage loans in the first quarter and that they expect to hit $3 billion this year, up from $2.74 billion in 2010 and two previous years of declines.

Portfolio lending used to be typical, but over the past 30 years that model was overshadowed by securitization as mortgages were put together and sold as bonds. Falling lending standards were one reason why the real estate boom turned into a bust and securitization has gotten tougher today.

"Securities buyers nowadays have become quite wary of buying any securities unless they have the guarantee of the federal government," said Lawrence White, an economics professor at New York University's Stern business school. Government-sponsored enterprises Fannie Mae, Freddie Mac and Ginnie Mae issue virtually all mortgage securities today, and their standards for down payment, credit score income and documentation have gotten much stricter, he said.

Portfolio lenders still want high quality loans -- they don't want to lose money -- but they have more flexibility to consider factors beyond a securitizer's checklist. For example, someone might not be able to make a 20 percent down payment but may have had loans with the bank before, he said.

"His loan just can't be securitized, but the bank feels comfortable making the loan, keeping it in its own portfolio because they know this guy, they trust him," White said.

Bridgehampton, which focuses more on commercial lenders, has been doing more advertising to drum up its residential business.

"One of the things that we've been doing is really trying to advertise the fact that we portfolio the mortgage, that we don't sell it," said Kevin Santacroce, executive vice president and chief lending officer of Bridgehampton National Bank. "The decision for the loan is made internally, and generally we can make that decision much quicker than someone that tries to sell the paper."

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