Banks have been cutting their home loan portfolios back, that is for sure, but the careful borrower can still locate a mortgage.
Smaller, community focused banks are still very active in the home loan business. That small banks are doing this should not be that much of a surprise. The beginning of the mortgage business was really small building and loan societies that funded local expansion with local investments. These banks may 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 still issuing mortgages in an around their community, the community they know, and in many areas are filling the gap left open by the big lenders who are now gone.
While major banks project reduced loan volume in all categories, including mortgages, community banks expect stable numbers in loan volume for single family homes, but no increases.
But there are still many organizations, community-development banks, credit unions, and other institutions that are not only still lending, but lending to sub prime customers, because they are involved in shoring up the communities they are located in. These companies are not only staying in business, they are making a profit on their loans.
A good example is Shorebank of Chicago, a $2.3billion asset bank which is active in the low income community of this city and, compared to the national average of delinquencies of 18.7%, has only 3.1%. Since they are dealing with sub prime customers, their rates are higher, and they are extremely careful about how they manage their portfolio. They strive to be profitable, but not to be involved in “profit maximizing” according to Mark Pinsky, CEO of Opportunity Finance Network, an umbrella entity for community development finance institutions. Reading between the lines, profit maximizing may be understood to mean the greed that has been one of the foundations of the financial markets’ current woes.
A case in point: Angelo Mozilo, the CEO of beleaguered Countrywide Financial, had a salary in 2007 of $22.1million, while Douglas Bystry, CEO of Clearinghouse CDFI received a salary of $190,000. The location of Shorebank is a modest renovated movie theatre, not an expensively built corporate complex.
This breed of sub prime lenders are committed to the community 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. Shorebank, for instance, 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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