ShoreBank Blog
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Archive for October, 2008
Friday, October 31st, 2008
The Commerce Department issued its initial and extremely preliminary estimate of third quarter Gross Domestic Product yesterday morning. (GDP is the total output of goods and services produced within a country’s borders.) US GDP dropped at an annual rate of 0.3% during the third quarter. It increased 0.8% on a year-over-year basis. Essentially all of the year-over-year growth can be attributed to the one-off stimulus of tax rebates distributed and (mostly) spent this past summer.
The components of 3rd quarter GDP provide little encouragement for a quick turnaround; in fact, they clearly point to harder times ahead. Personal consumption dropped 3.1%. This is the first outright decline in consumer spending since the fourth quarter of 1991. That’s “positively un-American,” as some office-seekers might say. The 14.1% drop in durable goods—that is, items meant to last at least three years—was the biggest since the first quarter of 1987. But that’s nothing. The 6.4% decline in non-durable goods consumption was the sharpest since the fourth quarter of 1950. Investment in residential structures continued its steep double-digit downward trajectory. The $350 billion (annualized) spent last quarter compares to a peak of $602 billion (annualized) in the fourth quarter of 2005. Investment in business equipment and software accelerated its decline with a 5.5% drop following a 5.0% drop in the 2nd quarter.
Nor did the glow from the few bright spots provide much comfort. Spending on non-residential structures has been robust, and it continued to grow though at a slackening pace. The 7.9% rise was the smallest in almost two years. Exports increased as well, but the strengthening dollar—not to mention global recession—is already creating a slowdown. State and local government spending rose 1.4%, though here again it’s hard to imagine that falling tax revenues won’t force spending cuts soon. Finally, the biggest jump was spending on national defense, up 18.1%. Let’s hope this is one positive economic trend that will not continue.
Tags: community development, economic predictors, financial crisis, green banking, ShoreBank, triple bottom line
Posted in Banking Industry | No Comments »
Wednesday, October 29th, 2008
One of the most interesting changes in the energy efficiency arena is the extent to which finance has come to be more fully recognized as a key element of any effort. This recognition represents a fundamental shift from just a few years ago, when ShoreBank launched its energy efficiency lending programs, including our Homeowners’ Energy Conservation Loan Program.
The shift comes at an interesting moment given the turmoil in the banking sector, but I think presents a unique opportunity to develop more inclusive and creative financing options. With loans from conventional sources more difficult to come by, ensuring low cost, accessible financing options is critical. Developing these new lending vehicles will likely mean reaching out to more creative lenders, such as community development financial institutions (CDFIs).
In the past, CDFIs have been largely absent from policy discussions around energy efficiency, yet they present a tremendous vehicle for reaching less affluent communities and for leveraging philanthropic, utility, and public benefit funding. One only has to look at the excellent work done by The Reinvestment Fund in Philadelphia to see the possibilities. With home equity loans practically non-existent, reaching carbon reduction goals will require a broader dialogue and new partnerships.
Indeed, the credit freeze could not have come at a more inopportune time given climate goals. A recent analysis conducted by the World Business Council for Sustainable Development suggesting existing homes must reduce energy usage by a much greater levels than previously thought if carbon goals are to be met. However, the lack of financing options for homeowners presents one more impediment to meeting climate goals.
Tags: CDFIs, community development, energy conservation loans, green banking, green building, ShoreBank, triple bottom line
Posted in Green Collar | 4 Comments »
Friday, October 24th, 2008
When things go wrong, our first impulse is to look around for something or someone to blame. Things are very definitely not going right in the financial world, so we better figure out whom to pin the blame on pronto. Everybody seems to have their favorite boogey man. For a while, it was Fannie Mae and Freddie Mac, but now that they are expected to buy everybody else’s toxic mortgage paper, they are falling out of the running. After all, they can’t be the problem and the solution too. Former Federal Reserve Chairman Alan Greenspan is coming in for his fair share of abuse, and History will be Treasury Secretary Paulson’s judge. Then, there’s that old stand-by “greed and corruption on Wall Street.” This isn’t getting a lot of traction either. Wall Street is where you’re supposed to be greedy, so that part is true enough. But greed is not a synonym for corruption. Large amounts of money always attract some criminal elements, but outright crime is peripheral, not central, to the crisis.
As for me, though, I blame Hollywood. 
Here’s why. The root of our financial problem is nothing more complicated than too much debt. It piled up and up and up, until finally there was one loan too many, and the whole over-burdened mess came crashing down. And why was there too much debt? Or to put it bluntly, why did you and I borrow more than we could afford? Simple; Hollywood made us an offer we couldn’t refuse. Hollywood, the tinsel capital of the world, the symbol of “have it all now,” relentlessly drilled its message into us from earliest childhood to advanced old age. And what was Hollywood’s insidious message? Not, you want this now; not, you need this now; but, you deserve this now.
You deserve this $40,000 car. You deserve this $500,000 house. You deserve this perfect body. You deserve an endless wardrobe of designer clothes. You deserve it all. And the lenders—banks, shadow-banks, finance subsidiaries, credit card companies, mortgage brokers—all got the message and said, “Come borrow from us so you can get what you deserve now.”
Everyone but the most pathological shopaholics fought the Hollywood culture to some extent. As Abraham Lincoln said, “You can fool all of the people some of the time and some of the people all of the time, but you can’t fool all of the people all of the time.” But we all of got fooled enough of the time to keep the debt merry-go-round whirling. There were few ways out. The models for completely rejecting the Hollywood culture led to extreme positions. Some were relatively benign like ultra-fundamentalist religions and backwoods communes, and some were downright crazy like the Unabomber.
But for most of us escape was impossible. Do you want that $40,000 car? Here are the choices. You can save for five years, but by then the car is different and it costs $50,000 any way. Or, you can get about a no-money-down, five-year loan, and drive the car home today. That’s a tough choice? I don’t think so.
During the Great Depression, the movie houses did a great business presenting a fantasy world of escape from hard times. Nowadays, the movies and TV may help cheer us up again. It’s the least they can do, since they got us into this mess in the first place.
(David Oser is the chief economist for ShoreBank. You can read more of David Oser’s insights at http://shorebank.typepad.com/)
Tags: community development, economic predictors, financial crisis, green banking, ShoreBank, triple bottom line
Posted in Banking Industry | 4 Comments »
Tuesday, October 21st, 2008
Wow! So much has changed in the banking world since I last checked in. While adjectives describing this change abound, few include “innovative.” It is the topic of innovations in green banking that I would like to discuss today.
Since the 1990’s, ShoreBank has been a pioneer in the field of green banking. Our conservation loans are good for the environment but also help our customers save money by reducing their utility bills. We carefully measure our conservation loans each year and look to find ways to increase our ability to do more lending in this area.
Last year, ShoreBank made $127 million in conservation loans. Many banks tout themselves as “green” for offering online bill pay and electronic statements, but ShoreBank backs up its claim by specializing in lending to homeowners to help make their houses more energy efficient and to projects that will create LEED certified green buildings.
ShoreBank’s commitment to being green is also reflected in its own branches and service centers. For example, ShoreBank’s new Central Loop Branch features:
* Recycled content flooring and ceiling tiles
* Energy efficient and zoned lighting
* Recycled content cubicle fabric
* 100% recyclable desk chairs
* A completely green galley kitchen that includes bamboo cabinetry, recycled glass countertops, recycled and porcelain flooring
ShoreBank is also committed to implementing green innovations in the target communities it serves— low-income, minority neighborhoods in Chicago, Cleveland and Detroit. One example of ShoreBank’s commitment to conservation lending is the construction financing ShoreBank provided for the Genesis Housing Development Corporation’s “Urban Green House.” Constructed in Bronzeville, a south side Chicago neighborhood it was the area’s first single-family environmentally sustainable home. With cost-saving green features such as central lighting shafts, cooling floor slabs, and a thermal rock bed and garden, the “Urban Green House” has been rated as the “greenest” new single-family residence in Chicago.
“There is sometimes a stereotype that ‘green’ consciousness only happens among a certain demographic and in affluent areas,” said Holly Marshall, Director of Operations at Genesis Housing Development Corporation. “The Bronzeville community has embraced this creative and eco-friendly approach to affordable housing and welcomes many more similar projects from ShoreBank in the future.”
Clearly, it is an exciting time to be involved in conservation banking. As I write this blog, a nonprofit organization called the Climate Group has just proposed “the UK Green Banking Charter” which would guide banks through the vital aspects and elements of green banking.
ShoreBank prides itself in its history of sustainable environmental leadership, and we’re confident that our expertise, investment, and innovation in conservation lending will continue to help change the world.
Tags: community development, energy conservation loans, green banking, green building, ShoreBank, triple bottom line, Urban Green House
Posted in Green Collar | 3 Comments »
Friday, October 17th, 2008
As ShoreBank’s new Online Channel Manager, I’ve just emerged out of post-MBA unemployment and am now immersed in a quest to fully understand economic concerns and ShoreBank’s potential to alleviate them. These two phases of my life have a surprisingly similar theme: frugality. The financial meltdown has intertwined with inflation to stimulate monetary concerns for everyone. However, that does not mean that we still can’t find creative ways to maximize our dollars! Here are a few investment tricks to try as we approach the holiday season(s):
1) Investigate high yield savings accounts, like those at ShoreBank. They are great ways to accrue up to 3.50% APY on your money with minimal effort. With the holiday season approaching, $350 on $10,000 will certainly let you loosen your financial belt by a notch.
2) Do not charge more on your credit card than what you can pay off per month. If the temptation of a credit card is too much for you to resist, try paying with only cash. It is amazing how easy it is to restrict extra spending when you only have $50 in your wallet.
3) Downsize your home. You don’t have to move to downsize. You can raise your income (and ’spring clean’) by creating an inventory of your items and selling unwanted/unused items on Craigslist.org or at a garage sale.
4) When you leave, turn ‘it’ off. Unplug non-essential appliances—even “turned off” appliances can use energy. For example, a plugged in (but “off”) television still uses about 20 watts of power. Also, set your heater to a lower the thermostat when you are out of the house. Turn off the lights when you leave each room. Turn off your computer. It may seem small, but $20 in savings on our electricity bill could buy your dinner.
5) Buy used or at discount. Research Freecycle.org or Craigslist.org for gently used items. Try to shop for your favorite items at discount or outlet stores. You not only save money, but you get the added thrill of getting great deals.
6) Grocery shop every week instead of every month, if possible. Buy only the items you need for that week’s meals. This eliminates overstocking (and overspending.)
7 ) Research free events in your city. The city government often sponsors several events, ranging from pumpkin festivals to musical concerts. Local colleges and universities also provide a number of low cost events that are open to the public. You save money and get exposure to new forms of entertainment!
8 ) Go out at ‘deal’ times. Go out to dinner on nights when they have specials. Go to matinees. Shop on ’sale’ days.
9) Try to spend nothing on one day per month. It is really hard, but surprisingly rewarding if you can do it.
I’d love to hear how much you can save, or your own tips and tricks. At ShoreBank, we want to help you change the world, and part of that involves providing you with resources to manage (and save) your money.
Tags: community development, green banking, high yield savings, recycling tactics, ShoreBank Direct, triple bottom line
Posted in Banking Industry | 4 Comments »
Tuesday, October 14th, 2008
Hello everyone! I don’t know about you, but I’ve lost some sleep over the last few weeks watching the markets go on their wild ride. What a time! I have read news reports and listened carefully to the explanations of what is happening and why, and I have to confess: I’m just not smart enough to understand all of these exotic investments. Where did all the money really go?
The one thing I haven’t lost sleep over is my IRA account at ShoreBank. That money is still there earning interest and safely insured by the FDIC. And I completely understand where it’s invested. ShoreBank is a community development and conservation bank, so deposits in ShoreBank help to fund loans to real people in real neighborhoods. 
Let us take a closer look at one of the growing lines of business at ShoreBank: single family mortgages. We make affordable, fixed rate, 30 year mortgages to people who want to buy or refinance a house to live in. They want to pay us back and, for the most part, they do. We turn down borrowers when we think they do not have enough income to afford the house or the loan they want. We carefully check incomes and credit scores but also meet with every borrower to gain an understanding of how they handle their money. Do they pay their utility bills and rent on time? Do they have extra income like child support that we can document? If they had unexpected medical bills to pay and got a little behind on their bills, we look at how they handled that situation. This is what our founder Ron Grzywinski calls “good old fashioned banking.” It’s clear. It’s safe. It helps people, and I am really glad that my IRA is part of the deposit base that makes this lending possible.
My money is safely FDIC insured, earning interest and will be there when I need it. That is what I call a good deal!
Tags: community development, FDIC, financial crisis, green banking, IRA, ShoreBank, triple bottom line
Posted in Banking Industry | No Comments »
Tuesday, October 7th, 2008
An increasingly popular idea about how to finance alternative energy and energy efficiency improvements involves the use of performance contracts or power purchase agreements (PPA). These types of financing arrangements involve a third party installing and owning the energy systems and then leasing the improvements back to the building owner. The structure has been used extensively by governmental entities (especially school districts) and by large Fortune 500 companies such as Google, Wal-Mart, etc.
At ShoreBank, we have been working for some time on what we call a “PPA for the rest of us” – meaning, performance contracts and PPA arrangements involving deals of less than $1 million, which cater to small nonprofits and other institutions, such as affordable housing projects, charter schools, and religious institutions. As we have explored doing so, we’ve discovered that these arrangements are far more complex than many people recognize. Aside from the credit issues that accompany these types of organizations, the long-term nature of the contracts and requirements for performance guarantees also present significant obstacles. Because the deals specify a fixed payment schedule from the beneficiaries, the interest rate on the financing must be fixed for the life of the agreement, usually 15-20 years in length. This fixed rate presents a significant hurdle given the lack of any secondary market. Similarly, due to the small size of the projects, and economic development goals, such as by small, minority contractors, performance guarantees are a concern. The firms involved are typically under-capitalized and therefore lack the financial strength to make the lender whole should the performance not meet required standards at some point in the future.
We believe that performance contracting and PPA arrangements offer a fantastic opportunity to promote energy efficiency and alternative energy. However, foundations, utilities, and governmental agencies must begin to partner with financial institutions to develop the requisite funding mechanisms and to create new types of performance guarantees if we are going to broaden the array of potential participants. Given the current financial crisis, we believe doing so is even more critical than ever and hope other partners will join us as we begin to pilot these initiatives.
Tags: community development, energy conservation loans, green banking, green building, power purchase agreement, ShoreBank, triple bottom line
Posted in Green Collar | 2 Comments »
Monday, October 6th, 2008
Over the next few blogs, I’d like to address the issues related to responsible lending that can help people accomplish their goals of successful homeownership. The headlines are filled with stories of families caught in “bad mortgages.” Many have already lost their homes or are on the verge of losing their homes. Some people blame irresponsible homeowners for the high rate of foreclosure, and feel that these borrowers should have known better, or that the homeowners were not credit-worthy in the first place. The answers are complicated and there is blame that can be shared by lenders, borrowers and regulators. However, despite the current economic situation, homeownership is still the best way to accumulate wealth. Homeownership provides a sense of security and forms the cornerstone of healthy communities.
“Subprime” has now taken on a very unsavory connotation. The difference between a subprime loan and a conventional loan is quite simple.
• Subprime lending was originally designed as a financing alternative for people with challenged credit or other high risk characteristics.
• Conventional loans were designed for lower-risk borrowers.
Borrowers usually are offered better rates on conventional loans with less flexibility in underwriting. Subprime loans were purported to allow greater flexibility. During the last few years, many families got caught up in sub-prime or “designer” loans, with low teaser adjustable rates and interest-only features. These are not necessarily bad mortgages, but not well suited to the borrowers.
What makes a mortgage a bad fit? A bad fit is when the mortgage doesn’t match the borrower’s financial profile and/or isn’t structured for their long term success. What are the signs of a poor fit? Look for:
• Mortgage payments that are too high for the borrower’s income and expenses
• Adjustments that do not limit future increases in payments
• Lack of security on the borrowers’ ability to make timely payments in the future
• Mortgages in which one is not paying any principal, or little principal, so that there is little or even negative equity
• Mortgage agreements that do not include taxes or insurance. These lump sum payments are hard for working class families to make.
Many banks don’t take the time to tailor a mortgage to meet the needs of the borrower. They simply sign them up for the biggest loan the bank thinks they can handle. When someone comes to ShoreBank for a mortgage, we make every effort to help them. 
Sometimes that may mean that they don’t walk out with a mortgage approval. However, we’ll work with our customers, even if they’ve had credit difficulties. We will provide an honest assessment of their current situation and offer tips on what will get them ready to accomplish their goals. If someone doesn’t have the credit to purchase a home now, we tell them what they need to do to be able to purchase a home in the future. We’re committed to ensuring that our borrowers fully understand the commitment and responsibility of homeownership, including paying property taxes, insurance, and maintenance. In fact, despite these difficult times, our mortgage default rates are well below the industry average, even in neighborhoods where other lenders have high delinquency and default rates. Our Rescue Loan Program is designed to help unsuspecting borrowers, who are caught up in sub-prime loans. This program is also able to help first time borrowers avoid these unscrupulous lending practices. We are committed to helping more families keep their homes. I’ll be talking more about rescue loans in future blogs.
ShoreBank’s capacity to help families stay in their homes and to keep neighborhoods vibrant is a result of the deposits our socially responsible investors place with us. As our deposit base grows, we continue to reach out to struggling families to help them achieve and keep their piece of the American dream.
Tags: community development, green banking, home ownership, Rescue Loan program, ShoreBank, triple bottom line
Posted in Mortgage Lending | 4 Comments »
Wednesday, October 1st, 2008
There are no trees in Iceland. Oh, alright, there used to be trees. The Icelanders cut them all down, causing the topsoil to erode, and now they won’t grow back. Still, the Icelanders are fine folks, all 320,000 of them. In 2007, the United Nations Human Development Index ranked the island nation the most developed county in the word. (We ranked 12th.)
That’s interesting (or maybe not), but what does it have to do with the price of tea in China? Well, the financial crisis has not spared Western Europe, and Iceland is looking like the leader of the pack. The Finance Ministry announced today that the country’s economy will shrink next year for the first time since 1992 and the budget deficit will be the biggest since 1994. Inflation is running at 14%, and the value of the Icelandic krona fell 10% versus the euro this week. On September 29th the government bought three-quarters of the country’s third largest bank, which could not get any other funding.
Island hopping to Ireland, we find the government guaranteeing payment on nearly all €400 billion of the country’s bank deposits and other debts. The French, Belgian, and Luxembourgian governments joined hands to stave off a default by the world’s largest lender to local governments, Dexia SA. This followed an earlier injection of €11.2 billion into Fortis by Belgium, the Netherlands, and, once again, plucky little Luxembourg. Fortis is a huge financial services firm that does just about everything for just about everybody. The Brits nationalized a big mortgage lender, Bradford & Bingley PLC, and Germany pumped €35 billion into Hypo Real Estate Holdings AG, the nation’s second biggest commercial property lender. And that’s just this week.
But what about China? A friend of mine has a theory. He thinks the Chinese slowed their purchases of Fannie Mae and Freddie Mac bonds last month not out of fear, but to test our system. China has a much bigger investment in the US, mainly in the form of US Treasury securities, than it does even in tea. The Chinese want to see how resilient we are. But also, they want to flex their financial muscles. China has enough capital to play Warren Buffett’s game many times over. Instead the Chinese are sitting on the sidelines. Perhaps they find it all amusing. A kind of payback for the Opium Wars.
Tags: community development, economic predictors, financial crisis, green banking, Iceland Economy, ShoreBank, triple bottom line
Posted in Banking Industry | 4 Comments »
The components of 3rd quarter GDP provide little encouragement for a quick turnaround; in fact, they clearly point to harder times ahead. Personal consumption dropped 3.1%. This is the first outright decline in consumer spending since the fourth quarter of 1991. That’s “positively un-American,” as some office-seekers might say. The 14.1% drop in durable goods—that is, items meant to last at least three years—was the biggest since the first quarter of 1987. But that’s nothing. The 6.4% decline in non-durable goods consumption was the sharpest since the fourth quarter of 1950. Investment in residential structures continued its steep double-digit downward trajectory. The $350 billion (annualized) spent last quarter compares to a peak of $602 billion (annualized) in the fourth quarter of 2005. Investment in business equipment and software accelerated its decline with a 5.5% drop following a 5.0% drop in the 2nd quarter.
