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KeyBank awaits spark in residential mortgage business

When KeyCorp bought First Niagara Financial Group, Key was eager to capitalize on First Niagara's residential mortgage business.

Key has extended that business line — which is locally based — across its own, much larger footprint, with nearly 300 mortgage loan officers. Now Key just needs the market to pick up, said Beth E. Mooney, Key's chairman and CEO.

"It is ramping, but it has been slower than we anticipated, and we are going into a slower market in which to launch," Mooney said Thursday, as Key released its third-quarter earnings.

"We just need more volume," Mooney said.

The problem, though, is rising mortgage rates, which are making houses less affordable to many buyers and putting downward pressure on prices in many markets, especially those with high home prices.

Key still views residential mortgages as "a top candidate for us," said Don Kimble, the bank's chief financial officer.

"The market has not been good for us, as far as the mortgage market, but we are making investments there, and we do expect to see some nice trajectory going forward in residential mortgage," Kimble said in a conference call with analysts.

The Mortgage Bankers Association's chief economist, Mike Fratantoni, said the mortgage banking industry faces challenges from a drop in origination volume, and that lenders are seeing higher costs, combined with "intensely competitive pricing," to capture more volume. Fratantoni also said the pace of home sales is being held back primarily by the pace of new-home construction, but he expects home purchase originations will increase each year from 2019 to 2021.

Key completed its purchase of First Niagara more than two years ago. Another business line Key added was First Niagara's indirect auto lending, which extends credit to buyers of vehicles. Key already had lending relationships with car dealers for their own operations. "The ramp-up on that has come much faster," Mooney said.

"We've seen nice growth on a year-over-year basis in indirect auto, and much of that is coming from the new markets that First Niagara has brought in," Kimble said.

Cleveland-based Key reported third-quarter profits of $468 million, or 45 cents per share, up 34 percent from $349 million, or 32 cents per share, a year ago, matching analyst forecasts.

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