Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=119853
Story Retrieval Date: 12/6/2013 7:34:07 PM CST
Michelle Collins, senior vice president and director of mortgage lending for ShoreBank, says the broader economy is the major “X” factor determining whether any of the federal mortgage rescue plans work.
“I am hoping that the work of our president and (Treasury) Secretary Geithner will stop the bleeding, stabilize the housing stock and the jobs,” she said. “It doesn’t matter what everybody does. If people aren’t working, then all bets are off.”
Once jobs and housing are stabilized, then the rest of the system can be rebuilt, Collins said.
So far, ShoreBank has not received any federal funds, but Collins said the bank has applied for a capital infusion from the Treasury’s Financial Stability Plan.
The key to the future of the nation’s banking is having financial institutions that are concerned and committed to the surrounding community, Collins said, and are willing to invest in those communities. ShoreBank focuses on 38 neighborhoods in the city’s south and west sides.
Since its inception, the bank’s mission has been local investment. Called the Triple-Bottom-Line, the mission of ShoreBank is to invest in the community and to promote environmental health, while earning a profit.
At year-end, ShoreBank had $354 million in community-developoment loans and $183 million in conservation loans, according to Brian Berg, vice president of corporate communications."
“We are the lab that shows, yes you can,” Collins said. “You can do good and be profitable and help the community at the same time.”
From her Bronzeville branch office on South King Drive, Michelle Collins strives to solve the community’s foreclosure problem one loan at a time.
Collins, senior vice president and director of mortgage lending, is one of the architects of ShoreBank Corp.’s Rescue Loan and Prevention Program aimed at helping homeowners at risk of foreclosure, and counseling first-time home buyers. Using money from investors and foundations the South Side bank is enabling troubled borrowers, including some from other lenders, to get out from under their existing, burdensome loans and move into a fixed-rate loan with more manageable payments.
So far, the bank has closed on 167 such loans totalling roughly $29 million, Collins said.
“We are not taking on bad loans,” she said, explaining that the program is based on sound underwriting. “The message is we are doing common sense loans for people that need our help.”
Borrowers must be able to show sufficient income to support the new mortgage loan, she added.
Gloria Stallworth is one of the bank’s success stories. The 54-year-old was able to get out of an 8 percent adjustable rate mortgage on her two-bedroom South Side home and into a 6.25 percent fixed-rate loan with ShoreBank.
“I thought it would be fixed at 8 percent,” she said. “It came down to six and that was a joy.”
Her monthly payments dropped from $802 to $692, freeing up money for her to pay down credit card and medical bills. Stallworth, who is a dietary supervisor for a hospital, provides the sole income for her household.
“I think they are doing a wonderful job,” she said, adding that one of her friends is now in the process of refinancing with ShoreBank.
As evidence of the program’s success, Collins pointed to a zero default rate on the bank’s rescue loans and a less than 4 percent late-payment rate. By contrast, the conventional-loan late-payment rate nationwide was 4.34 percent and the subprime rate was 20.3 percent, as of the third quarter of 2008, the latest data available, according to the Mortgage Bankers Association.
Coming to the aid of a community in need is nothing new for the 35-year-old bank. The institution has roots in a previous financial problem that also disproportionately affected the city’s minorities and low income residents.
The bank got started in the 1970s offering access to credit and financial services to South Side residents who were being shut out by other institutions, said Brian Berg, vice president of corporate communications.
Under the new rescue loan program, homeowners whose rates have adjusted upward or will soon adjust can apply for a fixed rate mortgage with ShoreBank. If there's sufficient equity in the house, ShoreBank will pay off the existing lender and make a new loan to the homeowner.
Borrowers who are under water --owing more than the house is worth-- are usually not eligible, she said. However, as the lending landscape changes through various government programs, notably the big housing-rescue plan announced by President Obama this week, more options are becoming available depending on the situation, Collins added.
In making the new loans the bank may stretch beyond the traditional 80 percent loan-to-value ratio, to as high as 100 percent, she said.
ShoreBank’s 30-year fixed-rate mortgage rates vary depending on the situation. For someone with “acceptable” credit and an 80 percent loan-to-value ratio, the rate as of Feb. 24 was 5.875 percent with 5.92 percent APR, Collins said. For a borrower with “challenged” credit, the rate was bumped to 6.375 percent with 6.42 APR.
When the loan to value ratio is higher, like 97 percent, someone with acceptable credit could get a rate of 6.875 percent with 6.92 APR, Collins said. With challenged credit the rate would be 7.373 percent with 7.42 APR.
According to the Mortgage Bankers Association weekly survey, the average 30-year fixed-rate mortgage was 5.14 percent plus 1.05 points, or 1.05 percent of the loan, for a loan with an 80 percent loan-to-value ratio, as of the week ended Feb. 27.
Funding for ShoreBank’s ambitious program is coming from the bank’s own deposit growth and other investments.
When the rescue program started, the bank launched a new online high-yield savings account, Berg said. The account, at Shorebankdirect.com, offers a 3.15 percent annual percentage yield and is FDIC insured.
Since the fall of 2007, the high-yield account has attracted 3,000 deposits for a total of $40 million, Berg said.
Other funding sources include a $15 million certificate of deposit from the John D. and Catherine T. MacArthur Foundation, a $5 million deposit from the Chicago Community Trust, and participation in the Finally Home program of the state treasurer’s office.
Finally Home offers a 10 percent guarantee against a loss in a high-risk situation, officials said.
Although the bank hasn't yet reported its 2008 financial results, Berg said the bank earned $2.6 million, even after providing nearly $24 million to its loan-loss reserve, bringing it up to $28.4 million. At the same time the bank raised $22.5 million in new equity capital from 11 investors, and obtained further commitments for an additional $4 million.
Total equity capital for ShoreBank at the end of the fourth quarter totaled $160.7 million, up from $144.9 million for the same period in 2007. The bank also reported a tier 1 leverage ratio of just above 6 percent, which is above regulatory minimums set forth in the Bank Holding Company Act.
To accommodate the rescue effort, in 2008 Collins’ department doubled its staff, to 35.
As a community development lender, ShoreBank was accustomed to making loans that Fannie Mae would not buy without private mortgage insurance, so-called conforming loans, Collins said. She considered her loans sound, but not loans being obtained by community residents from other lenders. Worried about the proliferation of subprime, adjustable-rate and interest-only loans, bank officials started an education effort.
“People were getting those loans even when they could have gotten a conventional, conforming loan,” Collins said. “There wasn’t a lot of homebuyer education going on.”
In 2005, 50 percent of mortgage loans nationwide were adjustable-rate, she said, and 30 percent were interest-only loans. At the same time 70 percent of mortgages were written by loan brokers, which compounded the potential for problems.
“There was a gap between the lender and the borrower,” Collins said. “I would say no one looked out for the borrower. So the borrower became a pawn in the game. You could make a lot of money and they were steered into loans that were more profitable in terms of the fees that the broker could make without regard to the impact on the homeowner and the homeowner didn’t understand.”
ShoreBank’s rescue program attempts to close that gap.
When ShoreBank makes a loan the bank generally keeps it rather than selling it to investors or Fannie Mae or Freddie Mac, officials said, so a long-term partnership between the lender and borrower is born.
“We have $2.3 billion in assets but we still work like the bank around the corner,” Berg said, adding that if someone falls behind on payments chances are it will be the loan officer who closed the deal who calls to check in.
As part of the education effort the ShoreBank staff has participated in hundreds of community outreach meetings, through churches and aldermen’s offices. An assistant to Ald. Willie Cochran (20th) said the bank has been to a number of community meetings and has been a “great help” in foreclosure prevention.
Of course, even as the bank reaches out to its community, it's not immune from the current economic situation.
But in 2008 the bank's loan losses amounted to only one-half of 1 percent of loans outstanding, according to Berg.