September 10, 2007
The new CEO of ShoreBank wants to save thousands of Chicago homeowners from foreclosure.
Just three months after taking over the South Side bank, Joseph Hasten is mounting an effort to offer mortgage refinancing to many of the 10,000 South Side homeowners whom ShoreBank believes are at risk of losing their homes to foreclosure in the next 18 months. The rescue mission comes amid a housing crisis that has other lenders fleeing from the subprime borrowers who live in the neighborhoods ShoreBank serves, and as fallout from subprime mortgage lending continues to afflict the U.S. economy.
Mr. Hasten says the situation calls for ShoreBank to move fast.
“The principal reason is, it’s urgent,” he says.
By rushing headlong into the foreclosure crisis, Mr. Hasten, 55, is leading ShoreBank into uncharted, risky territory-and quickly putting his ambitious stamp on the high-profile community development bank.
To help finance what would be the bank’s largest foray into mortgage lending, ShoreBank Corp., the bank’s holding company, is raising $52 million, up from the $40-million capital campaign that it had planned before Mr. Hasten’s arrival. He intends to promote the refinancing through direct mail and the bank’s first radio advertising campaign in at least a decade. And for the first time, the bank will accept borrowers who use mortgage brokers, which it has shunned as a source of business in the past.
Those aren’t Mr. Hasten’s only ideas. He speaks of raising deposits from socially conscious investors through a high-yield online certificate of deposit. He’d like to expand ShoreBank beyond its traditional base of black customers by adding branches in Hispanic communities, and maybe even in more well-heeled communities like Evanston that previously were not in the bank’s sights but have pockets of low- and middle-income populations.
The new vision for ShoreBank reflects the big-league experience of Mr. Hasten, a corporate banker for most of his career whose last job was head of corporate lending at Minneapolis-based U.S. Bancorp, a national bank with $221 billion in assets.
A lively and personable Northwest Side native, Mr. Hasten is the first outsider named to the top job at the bank-which has more than $2 billion in assets-in its 34-year history. As CEO, he’s proving to be even more of a departure. Mr. Hasten has settled in the North Shore suburb of Wilmette, where his wife grew up, and is suffering the long commute to ShoreBank’s branch at 79th Street and Cottage Grove Avenue.
By contrast, most of ShoreBank’s former CEOs lived on the South Side or in the south suburbs; virtually all of its current leaders-co-founders Ronald Grzywinski and Mary Houghton, as well as Chief Financial Officer George Surgeon-live in Hyde Park.
Mr. Hasten doesn’t take credit for the ideas he’s pushing. In fact, many of these notions have been knocking around the bank for years. But by acting quickly, bank insiders say Mr. Hasten has provided a needed jolt to ShoreBank’s mission-based approach, aimed at helping neglected communities financially and promoting environmental conservation, all while making a profit.
“These are other people’s ideas, but I don’t care,” he says. “I’m in the `let’s do it’ mode.”
As word of Mr. Hasten’s foreclosure-blocking plan gets out, worried advocates for low-income borrowers are happy to see ShoreBank take on the mortgage crisis.
Mr. Hasten’s initiative “seems a wonderful way to go,” says Malcolm Bush, executive director of the Woodstock Institute, a Chicago-based advocacy group.
ShoreBank recently refinanced the adjustable-rate mortgage on Robert Williams’ two-bedroom South Shore condominium. The interest rate on his old loan had been scheduled to reset this month, increasing from the original 6.75% to 8.75% and adding nearly $200 to his monthly payment of $1,192.
“It would have been extremely tight” making the higher payments, Mr. Williams says. “My fear was that I would eventually be late and lose my house.”
Making matters worse, Mr. Williams already had filed for bankruptcy protection four years ago, and a foreclosure would have ruined his credit for years. ShoreBank refinanced him into a 30-year, fixed-rate loan at 7.375%, with a monthly payment of $1,198, just $6 over what he paid before.
Bailing out borrowers like Mr. Williams may help stabilize financially shaky neighborhoods, but it also gets risky for ShoreBank. Mr. Hasten knows he can’t refinance all 10,000 at-risk homeowners. But he expects to put at least $200 million more in mortgages on the bank’s books in the next 18 months, nearly doubling its home-loan portfolio.
ShoreBank has been mainly a commercial lender in the past, focusing on loans to apartment rehabbers on the South Side. Of the $1.3 billion in loans on its books, only about 15% are mortgages.
Such a quick ramp-up could lead to a loosening of underwriting standards, or simple errors, which could lead to heavy losses if loans go bad. The success of the rescue plan depends on resource-intensive, detailed underwriting that delves into borrowers’ incomes and spending habits. ShoreBank doesn’t have the staff to manage such a big increase, although Mr. Hasten believes he can add staff quickly.
Another wild card is whether government-sponsored enterprises Fannie Mae and Freddie Mac will purchase some of the refinanced loans. The two giant mortgage buyers want to help ease the home-loan crisis, but the Bush administration has been cool to allowing them to loosen lending standards, which could prevent them from financing some borrowers with low credit scores.
Another issue: “Most of the loans that got done in (ShoreBank’s neighborhoods) were done by large players who absolutely packaged them up and sold them off,” says Anne Arvia, former ShoreBank CEO and now CEO of Nationwide Bank in Columbus, Ohio. Pre-payment penalties apply in most of those cases when the loans are refinanced before rates adjust.
Mr. Hasten says servicers of those loans have been willing to forgo the pre-payment penalty in early talks, although he acknowledges that it could be an issue and that his mortgage plan is fraught with other risks. But he’s confident that ShoreBank can negotiate those risks and make money doing it.
“We’re not just doing this because we’re virtuous,” he says. “We’re doing it because we’re good at it.”