Everyone knows that the home loan market is in turmoil, but there are still plenty of lenders who are lending.
Smaller, community focused banks are still extremely active in the mortgage business. This should not really be a surprise. Mortgage loans originated with the old building societies, like we see each year on “It’s a Wonderful Life”- taking Joe’s money to build Bob’s house. These banks ar perhaps no longer be called by the same name, but they are doing the same thing, staying local, and this has insulated them from many problems.
They are actively lending to their customary clients and even expanding to absorb the slack where other lenders are no longer active.
While major banks project lower loan volume in all categories, including home loans, community banks expect stable numbers in loan volume for single family homes, although no increases.
Community lenders such as this, which may include credit unions and development banks, have had extraordinary success in lending to the so-called sub prime borrower, because they remain close to the customer they are lending to. These companies are not only staying in business, they are earning a profit on their loans.
A good example is Shorebank of Chicago, a $2.3billion asset bank which serves the low income community of this city and, in contrast to the national average of delinquencies of 18.7%, has only 3.1%. They charge market rates which are higher than those available to prime borrowers, and manage their risk prudently. And their goal is only to be profitable, not profit maximizing, a interesting point made by Mark Pinsky, the head of Opportunity Finance Network, an umbrella group for these types of banks. If we take profit maximizing as another word for greedy, then this may be one of the main things that separates these banks from the national giants that are on the ropes now.
If you look at the salary of a CEO of one of these small community based organizations, such as that of Douglas Bystry of Clearinghouse CDFI, at $190,000 in comparison to that of Angelo Mozilo, CEO of Countrywide Financial at $22.1million, you can realize the problem. The location of Shorebank lies in a modest renovated movie theatre, not an expensively built corporate complex.
This breed of sub prime lenders are committed to the locale and so to the loans they make, and instead of merely originating the loans and reselling as most major lenders do, they use initiatives that help insure the loans will be paid. Take the program managed by Shorebank that educates its borrowers in energy conservation in order to save costs, money saved that can help pay the mortgage.
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