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- Capitol Federal Savings Bank is shifting its focus from home mortgages to commercial loans due to a slump in the housing market.
- High interest rates and low housing inventory have slowed mortgage activity, impacting the bank’s home loan portfolio.
- The bank is using cash flow from its shrinking mortgage portfolio to fund the growth of its commercial loan portfolio.
- This strategy has increased Capitol Federal’s net income, aided by lower taxes and higher returns from commercial loans.
Capitol Federal Savings Bank, the largest supplier of mortgages in Topeka, is investing more heavily in commercial loans due to a slumping housing market.
In an investor report released on July 23, Capitol Federal Financial Services, the bank’s parent company, said the bank is shifting its focus from traditional mortgages, which it calls one-to-four family loans.
“As a result of continued high interest rates and a lack of housing inventory, which has reduced housing market transactions, our one-to-four-family origination and refinance activity has slowed which directly impacts the bank’s one-to-four family loan portfolio,” the report said.
Capitol Federal’s 30-year fixed-rate mortgage is at 6.625% for conventional loans in Topeka. Nationally, mortgage rates shot up after reaching all-time lows during the pandemic, when loan rates were under 3%.
In 2023, mortgage rates exceeded 7% for the first time since 2002, according to data from Freddie Mac, a government-sponsored company that buys home loans.
Topeka housing market was red hot
In fall 2023, The Wall Street Journal and Realtor.com ranked Topeka as the No. 1 emerging real estate market. The report noted the city’s low housing prices and low unemployment rate.
By winter 2023, the Wall Street Journal and Realtor.com dropped Topeka to the 16th best emerging housing market, and it hasn’t graced the top 20 since.
Topeka’s home value index says the average value of a home in Topeka is around $200,000, up significantly from the $111,324 average home value in March 2017, according to Zillow.
In fiscal year 2024, Capitol Federal was putting more into commercial loans.
“Management expects the bank’s one-to-four family loan portfolio will continue to decrease as cash flows generated from the one-to-four family portfolio are used to fund commercial loan growth,” the 2024 report said.
In the third quarter of 2023, Capitol Federal said it’s staying the course of funding commercial loan growth with cash generated from its shrinking share of traditional mortgages.
The numbers
Through 2025, Capitol Federal increased its portfolio of commercial loans by $420.9 million, and decreased its portfolio of home mortgages by $286.2 million.
The strategy appears to be working, with the bank increasing its net income to $18.4 million for the quarter compared to $15.4 million the year before. The report attributes the increase in revenue to lower taxes on banks due to Kansas’s 2024 comprehensive tax relief package and greater reliance on commercial loans.
“The increase in interest income on loans receivable was due mainly to an increase in the average balance of the commercial loan portfolio as the portfolio continued to shift from one-to-four family loans to commercial loans,” Capitol Federal’s investor report says.
