Subprime lenders: wicked, evil, nasty predators, right? Not necessarily:
Community-development banks, credit unions and other [community-development financial institutions] a mixture of faith-based and secular, for-profit and not-for-profit organizations constitute what might be called the “ethical subprime lending” industry. Even amid the worst housing crisis since the 1930s, many of these institutions sport healthy payback rates. They haven’t bankrupted their customers or their shareholders. Nor have they rushed to Washington begging for bailouts. Their numbers include tiny startups and veterans like Chicago’s ShoreBank, founded in 1973, which now sports $2.3 billion in assets, 418 employees and branches in Detroit and Cleveland. Cliff Rosenthal, CEO of the National Federation of Community Development Credit Unions, notes that for his organization’s 200 members, which serve predominantly low-income communities, “delinquent loans are about 3.1 percent of assets.” In the second quarter, by contrast, the national delinquency rate on subprime loans was 18.7 percent.
Of course, they’re not in it just for the potential returns:
What sets the “good” subprime lenders apart is that they never bought into all the perverse incentives and “innovations” of the late subprime lending system the fees paid to mortgage brokers, fancy offices and the reliance on securitization. Like a bunch of present-day George Baileys, ethical subprime lenders evaluate applications carefully, don’t pay brokers big fees to rope customers into high-interest loans and mostly hold onto the loans they make rather than reselling them. They focus less on quantity than on quality.
I’ve mentioned before that I wasn’t exactly a “prime” customer when I went loan-shopping in ’03, but I did manage to nail down some financing with a statewide bank, at a reasonable rate. And they haven’t resold my loan, either: I’m still dealing with the same folks. (In fact, I still get birthday cards from the loan officer.)
I checked in with Central Oklahoma Habitat for Humanity, a faith-based group that has built hundreds of homes around town. They quote their default rate as “approximately 3%.”
Of course, Oklahoma was never a hotbed of “creative” home financing, which explains why the market hasn’t quite gone to hell here, though builders with lots of inventory may beg to differ.
(Found by Moxie.)