There is no doubt that home loan originations are lower than they have been in years, but there are still many banks that are making mortgage loans.
Smaller, community focused banks are still extremely active in the home loan business. This should not really be a surprise. The beginning of the home loan business was really small building and loan associations that funded local expansion with local deposits. These banks may no longer be called by the same name, but they are performing the same task, staying local, and this has protected them from many problems.
They are actively lending to their customary clients and even expanding to pick up the slack where other lenders are no longer active.
Big commercial lenders have cut back drastically in mortgage lending, but the small community banks are continuing their mission, even if their growth has slowed.
But there are still many organizations, community-development banks, credit unions, and other institutions that are not only still making loans, but lending to sub prime customers, because they are involved in shoring up the communities they are located in. These lenders are not only remaining in business, they are earning a profit on their loans.
Organizations such as Chicago’s Shorebank, which has $2.3 billion in assets and predominantly serves low income communities boasts a delinquent loan rate of 3.1% of assets, compared to the national average of 18.7%. They do lend at higher rates than for prime rate customers, but they are careful about the risks they take. And their goal is only to be profitable, not profit maximizing, a fine point made by Mark Pinsky, the head of Opportunity Finance Network, an umbrella group for these types of banks. Reading between the lines, profit maximizing may be understood to mean the greed that has been one of the causes of the financial markets’ current woes.
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. Besides salaries, another example might be business decisions; Shorebank is headquartered in a renovated building, not a new corporate high rise.
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 big lenders do, they use initiatives that help insure the loans will be paid. Shorebank, for example, runs an energy conservation program because they realize that the home loan is more likely to be paid if the homeowner can afford to pay his electric or heating bill.
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