ELIZABETH BRACKETT, NewsHour Correspondent: The boarded-up homes tell the story: Foreclosures in largely minority neighborhoods on Chicago's south and west sides have tripled since 2004. But the people in this neighborhood may have a second chance.
MICHELLE COLLINS, ShoreBank: We are here tonight to tell you that ShoreBank is committed to the people of these communities. And if you're in a situation where you have a mortgage that you didn't know what kind of a mortgage it is, or if it's adjusting, or if it's a high-cost loan, we're here to help you with that.
ELIZABETH BRACKETT: Loan director Michelle Collins meets with community groups several nights a month to let them know about ShoreBank's new rescue loan program to refinance mortgages in danger of default.
ShoreBank identified 10,000 homeowners in their service areas who have subprime loans with rates due to adjust up in the next 18 months. The bank says some with subprime loans are just in way over their heads with loans that cannot be successfully refinanced. Though Collins believes at least 20 percent of the 10,000 could have qualified for a fixed rate loan, but were sucked in by enticing offers from mortgage brokers.
MICHELLE COLLINS: So if someone said to you three years ago, "Oh, I could offer you 1 percent interest," you might say, "Really, 1 percent interest?" Maybe you didn't ask the question, "Is it fixed?" So if a normal bank offers you 5.50 percent, which is an excellent rate, you might say, "Fixed," you might say, "Oh, I don't care if it's adjustable. Let me take the 1 percent."
That happened to city worker Rudy Villareal. Two years ago, he, his wife, Edith Hidalgo, and their 10-year-old son fell in love with this four-bedroom house on Chicago's west side. First-time homebuyers, they didn't realize the consequences of getting a loan that was set to adjust up to a 12 percent interest rate after two years.
EDITH HIDALGO, Homeowner: When you go in there, and you're telling them your dream, you're, like, showing them everything you want. So I think they take advantage of you by saying everything is going to be well. This is not what you can do right now with the loan that's not the best, but in two years, you're going to change the mortgage, and it's going to be way better.
But you got the house. That's what you want, the house. So you're like, "Yes, that's what I want, the house." And two years later, it's like, "How did I get into this?"
ELIZABETH BRACKETT: Terrified that he would lose the house, Villareal turned to his local alderman, who told him about ShoreBank's rescue loan program. Working with the family's finances, ShoreBank was able to offer a fixed-rate 30-year loan at 6.75 percent.
RUDY VILLAREAL, Homeowner: It means peace of mind, at least. You have a house to live in, and that's your dream. It's the American dream to have a house, you know?
ELIZABETH BRACKETT: And it's now possible.
RUDY VILLAREAL: Now it's possible. It's very possible, yes.
MICHELLE COLLINS: Can I ask about the mortgages -- are they fixed rates or are they adjustable?
MARIA TRAVIS, ShoreBank: Well, it was an adjustable rate.
ELIZABETH BRACKETT: The rescue loans, like all ShoreBank loans, are carefully vetted by a series of committees. More than just credit scores are considered.
MARIA TRAVIS: If we do nothing, there will be a struggle now with increases of the adjustable rate. So us refinancing, they will not have to pay that increase and then they won't -- you know, they'll fall into financial hardships. They will not be able to pay the adjustable rate and may be in line for foreclosure.
What we're doing is taking them out of the two adjustables and putting them into one fixed rate. And they will not see the payment shock.
MICHELLE COLLINS: Right.
MARIA TRAVIS: You know, the loan officer is comfortable with the security of her job and comfortable with -- you know, they went through some financial hardships with the medical and with the job change. And it looks like they're, you know, making the right choices, going down the right track to making some right financial decisions.
ELIZABETH BRACKETT: At a recent staff meeting, Collins had good news about the first 30 applicants for bank president Joe Hasten.
MICHELLE COLLINS: We closed 13 of those already. The rest are kind of somewhere in the middle. We've only denied about four of them, so, so far, we're doing very well. We are building capacity in order to service 10,000 borrowers of this nature.
JOSEPH HASTEN, CEO, ShoreBank: Well, if you get all 10,000, I'll be delighted.
ELIZABETH BRACKETT: And more good news: There have been no foreclosures on ShoreBank's loans this year. Collins thinks one reason is that, unlike some banks which sell their mortgages to secondary institutions, which then bundle and sell them to investors, ShoreBank's loans are rarely sold.
MICHELLE COLLINS: If you don't have the relationship, if you just sold it off, if something goes wrong, and you have to call 1-800-FLORIDA to find out, "Can I talk to someone?" And they're saying, "No, you can't talk to anybody. Where's the money? Where's the money? Where's the money?" That's a problem.
ELIZABETH BRACKETT: The rescue loan program fits right into ShoreBank's history. Founded by four idealistic young bankers in 1973, it was the country's first community development bank. From the beginning, the bank had a double bottom line: to make a profit and to invest in and develop the communities it served.
Founder Mary Houghton says many skeptics in the early days didn't believe a bank with a mission to develop poor neighborhoods could also make a profit. Thirty-four years later, with a healthy $2.1 billion in assets, Houghton thinks the bank's rescue loan program is just the kind of new challenge the bank should take on.
MARY HOUGHTON, ShoreBank Founder: I think it's a great plan, and I hope we reach, you know, genuinely thousands of people. I do think it is sort of similar to the original bravado of the bank in the '70s, when redlining was so prevalent, and we just, as young bankers, said we were going to change it. So I think this is a great step up for the bank.
ELIZABETH BRACKETT: To finance the rescue loan program, the bank's holding company plans to raise $52 million. And the bank has introduced a new product for socially conscious investors.
JOSEPH HASTEN: We did launch last week an online electronic high-yield deposit savings account product that we hope will cause us to raise core deposits at a rate which will support this increased lending.
ELIZABETH BRACKETT: ShoreBank hopes bigger banks will follow its lead and begin to refinance their troubled loans.
MICHELLE COLLINS: I can tell you, I've been a lender for a number of years. I don't enjoy driving up and down blocks and seeing boarded- up homes. I'm thinking to myself, "Look at that." And then if you live next door, again, whether you have a subprime loan or not, your home is impacted when the house next door is for sale.
Now, you put three or four or five of those on a block, you have devastated the block. Somebody has to step up. We are stepping up, and we encourage others to step up with us. We encourage the regulators to encourage other banks who have these subprime loans to modify these loans so that we can curb and reduce the projected number of foreclosures.
ELIZABETH BRACKETT: Collins says the Chicago area is only about a third of the way through the subprime loan crisis. Another two-thirds of the subprime loans will reset at higher rates within the next two years.