During the housing boom, local banks and thrifts struggled to compete for mortgage business with aggressive brokers and national lenders. Now, some community banks are regaining market share as those rivals scale back or go out of business.

Hingham Institution for Savings, based in a Boston suburb, is one of the small banks now doing more mortgage business even as tighter credit and the housing slump shrink the overall market for home loans. Unlike most lenders, Hingham doesn't use computer software to determine which borrowers qualify. Instead, a nine-member executive committee reviews each loan application. Its loan-origination staff is salaried rather than paid a volume-based commission that can fuel aggressive selling.

Hingham, founded in 1834, has good reasons to be extra-careful in assessing borrowers' ability and willingness to repay: It holds onto its mortgage loans rather than peddling them to investors. "It's old-time banking," says Michael J. Sinclair, a vice president at Hingham.

Despite a nationwide slump in mortgage lending, this retro formula is working so well that Hingham and similar community banks are seeing a resurgence. Its home-loan volume is up 30% in the first four months of the year to $24 million. And mortgage loan originations at Hudson City Bancorp, a Paramus, N.J., thrift holding company, surged 26% in the first quarter from a year earlier, to $820.4 million.

In contrast, total U.S. home-mortgage originations in the first quarter dropped 29% to $480 billion, estimates Inside Mortgage Finance, a trade publication.

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Tiny thrifts like Hingham and midsize institutions like Hudson City will never be the nation's dominant mortgage lenders, of course. The top 10 U.S. mortgage lenders, mostly units of large banks, accounted for 72% of loans originated in the first quarter, Inside Mortgage Finance says. Still, the gains by small banks show that the giants of the industry won't have the field to themselves.

Small banks are getting more business largely because many mortgage brokers are going out of business. Like the small banks, brokers are local firms, but they often originate loans that are funded by national lenders, bypassing the local bank. The number of U.S. mortgage brokerages is likely to fall to about 30,000 by year's end from 53,000 in early 2007, says Wholesale Access, a research firm in Columbia, Md.

For consumers, one attraction of local lenders is that there is no need to spend hours trying to reach the right person on a phone if problems arise. Charles Palmieri, an electrician in Cohasset, Mass., has had mortgages from national lenders but decided to use Hingham when he refinanced this year. If any questions arise, he says, "we can walk in and talk to someone."

Washington Federal Savings Bank, a 110-year-old thrift based in Washington, Pa., about 20 miles south of Pittsburgh, shunned subprime and other riskier types of mortgages, even though some of its loan officers grumbled that they were losing business to competitors.

But at the end of April, Washington Federal's president, Brian J. Smith, could count on one hand the number of loans owned by his bank that were 30 days or more overdue: four. That equates to a delinquency rate of 0.21% of the dollar value of home mortgage loans.

Many local banks don't have the capacity to hold loans on their books and so act as brokers. Taylor, Bean & Whitaker Mortgage Corp., a mortgage lender based in Ocala, Fla., has signed up more than 2,100 community banks to act as brokers for loans funded by Taylor Bean. Mark Hammond, who oversees Taylor Bean's dealings with community banks, says the company's mortgage lending generated in the first four months of this year was up 31% from a year earlier.

"More and more [small] banks are learning that they can compete with mortgage brokers using our program," Mr. Hammond says.

Write to James R. Hagerty at bob.hagerty@wsj.com

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