by Debbie F. Longo

Everyone knows that the mortgage market is in a mess, but there are still plenty of banks who are lending.

Many local banks never were involved in the credit mess and are actively lending. That small banks are doing this should not be too much of a surprise. The origin of the mortgage business was small, locally focused “building societies”, who took in deposits from local depositors to lend out to local homebuyers. Of course, they go by different names nowadays, but banks that focused on their core business and area have for the most part avoided many of the problems in banking.

They are still able to not only make home loans available, but are even growing their mortgage portfolios to fill some of the gap created by the big players who have been forced out of the market because of rapid expansion in low quality loans.

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.

Community lenders such as this, which may include credit unions and development banks, have had great success in lending to the so-called sub prime borrower, because they remain close to the customer they are lending to. In fact, many of these lenders are not just staying alive, they are turning a profit.

A good example is Shorebank of Chicago, a $2.3billion asset bank which serves 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 tend to be 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 group for community development finance institutions. Reading between the lines, profit maximizing can 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 as compared to that of Angelo Mozilo, CEO of Countrywide Financial at $22.1million, you can see a problem. ShoreBank has its location in an abandoned 1920’s movie theater, not a multilevel steel and granite behemoth in a suburban corporate park.

These kind of lenders prefer to remain close to their customer base, for by doing so, they can monitor their portfolio and protect their assets better. 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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