ShoreBank Blog
The ShoreBank Blog is your place to find ShoreBank news, new product information, and our insight into the banking world.
Posts Tagged ‘financial crisis’
Friday, December 19th, 2008
Last month, I had the distinct pleasure to attend a unique conference in the truly world-class city of Berlin. The conference, organized by KfW, a German Development Bank, focused on how to “green” the financial services industry around the globe – from microfinance institutions focused on the very poor to the larger commercial banks targeting small and medium enterprises in more affluent areas. Particular attention was focused on the innovative work being done on financing of energy efficiency and alternative energy projects throughout the world. The participants voiced a near unanimous concern that the current financial crisis had greatly hindered on-going efforts to green the banking sector and that decisive action was needed in the next few months to maintain the momentum.
The discussion raised a fundamental question about the best strategy for achieving the dual objectives of ensuring adequate financing for green efforts and institutionalizing green lending in the commercial banking sector. My take is that due to the compressed timeline for reorienting the economy away from fossil fuels and given the depth and breadth of the financial crisis, these two objectives may no longer overlap. I am not convinced that we have the time to incrementally incent existing banks to increase their green lending – the hurdles are simply too great to get them to do so and time available way too short. Instead, I think we will need to look seriously at capitalizing (new or existing) institutions focused on the green sector and hope that their efforts and outsized returns lead more established entities to enter the market later.
Certainly, in the US, we have seen how institutions focused on developing financial products for new markets have transformed banking. I need only look outside my window to see the results. When ShoreBank was founded, no banks thought of low wealth areas as ideal places to grow and thrive. Today, ShoreBank faces increasing competition from mainstream banks in these communities and we now have commercial banks and other types of financial intermediaries on nearly every corner surrounding our branches. Our success was a catalyst for a wholesale change in the overall industry. I believe a similar pioneering effort is now needed within the green sector.
Tags: community development, energy conservation loans, financial crisis, green banking, ShoreBank, triple bottom line
Posted in Green Collar | 5 Comments »
Monday, December 15th, 2008
Messengers have little to fear when delivering good tidings, but no messenger wants to be the bearer of bad news. Yet the fact remains: we are a long way from victory as the scope of the Panic of 2008 emerges in its full gloom. We are in a consumer-led recession, where loss of wealth from eroding home values and plunging 401(k)s leads to loss of both the ability and the willingness to spend. Less spending leads to less employment, which leads to less wealth in a cycle that is beginning to turn vicious. Eventually the cycle will be broken, but that time isn’t now.
One of the key indicators I watch is the Bureau of Labor Statistics’ weekly count of the number of persons filing unemployment insurance claims for the first time. To be eligible for unemployment compensation a person must:
* Have worked during a one-year period.
* Be unemployed through no fault of his or her own.
* Be physically and mentally able to work.
* Be available for work.
* Be actively looking for work.
Over the last five weeks 2,678,000 Americans, an average of 536,000 a week, met these criteria and applied for unemployment benefits. Nothing like this has been seen since the major recession of the early 1980s. From September 1981 through June 1983, weekly initial unemployment claims averaged 543,000. They peaked at 695,000 in October 1982, and never were less than 434,000.
Today, 4,429,000 Americans are collecting unemployment benefits, compared to an average of 2,725,000 over the last 20 years. Looking back again to the early ‘80s, we see that continuing unemployment claims averaged 3,862,000 and topped out at 4,713,000 in November 1982.
Times were different then, and the enemy was rampant inflation. The Federal Reserve and the Treasury moved more slowly and less aggressively. But the message is that bad times are not going away soon. Keep an eye on weekly unemployment claims, released every Thursday morning for an early clue to a turnaround.
Tags: community development, economic predictors, financial crisis, green banking, ShoreBank, triple bottom line, unemployment rate
Posted in Banking Industry | 2 Comments »
Friday, December 5th, 2008
Last holiday season, I was in graduate school during what the National Bureau of Economic Research recently declared the “start of the economic recession.” Yet despite my declining bank account balance and lack of income, I had one of the happiest holiday seasons ever. Why? Because I had devised a strategy to minimize my expenses while maximizing my gift giving and holiday festivities.
In this economy, it seems that almost everybody has these same goals. The trick is to find and practice the holiday thrift tips that best suit you. On that note, I interviewed ShoreBankers at our headquarters in the South Shore neighborhood of Chicago, and asked them what advice they would give shoppers hoping not to overstrain their holiday budgets. Here is what ShoreBankers recommend:
1. Save throughout the year. For example, saving just $25/month in a high yield savings account at ShoreBank each month will build a $300 kitty for holiday shopping in December. In addition, you can buy an extra treat with the interest you earn.
2. Stick to your holiday shopping budget. Several ShoreBankers use an Excel spreadsheet that lists who they plan on giving to this holiday season, the dollar amount they have allocated to that person’s gift, a list of budget appropriate gift options, and the final cost of the gift. This kind of tracking helps to avoid negative surprises on credit card bills in January. The key is to be disciplined $25 does not mean $26.
3. Give your time. One ShoreBanker said, “Give time. It’s the most precious gift you can give.” Bake cookies. Make dinner. Give a month of backrubs. For many, the little (and least costly) things have the most meaning.
4. Differentiate between what you “need” and what you “want.” You can then allocate your budget more effectively. If you have a soft spot for certain seasonal products (mine is for seasonal lattes), make a schedule for your treats and stick to it.
5. Primarily use ATMs and debit cards, and account for each transaction. Multiple ShoreBankers said “If you only need $40 from the ATM, resist the temptation to take out $80.” Use a debit card, write down every ATM transaction in your checkbook, and look at your account balance daily. It’s difficult, but even the attempt at completing this task can help you watch your budget.
6. Comparative Shop. Something we all know we should do but it is increasingly relevant as many stores are adding competitive match offers. Plus, you might be able to buy items in a store at online prices without paying for shipping.
7. Discount and Coupon Shop. Some ShoreBankers recommended going to thrift stores, goodwill, or discount racks at brand stores to buy top tier brands at low prices. Search for coupons and “percent off days” for necessary items on your lists. Remember, if you can get a good price on a quality item, it’s still a quality item.
8. Search for free seasonal activities. Most city halls have lists of free events. Who knows, you might even stumble upon a children’s choir performance!
I love the holidays and I hope one of these tips helps you to enjoy the season just a little more. As one ShoreBanker said, “We know the economy is bad. It is what it is. You just have to pay attention and use your money more wisely.”
Tags: community development, financial crisis, green banking, high yield savings, ShoreBank Direct, triple bottom line
Posted in Banking Industry | 1 Comment »
Friday, November 21st, 2008
The scale of the foreclosure crisis threatens the dreams of many homeowners in ShoreBank’s communities. In my last blog, I wrote about what makes a mortgage a bad fit for consumers. The reasons vary, but if someone you know has the wrong mortgage for their circumstances, remember that there are solutions. One is a Rescue Loan.
The most important thing to remember if you’re having difficulty making your monthly payments is to take action right away. It’s easier to recover if you haven’t missed more than one or two monthly payments. As the foreclosure process moves along, the size of the delinquent debt owed, and the bank legal costs that customers are usually charged, mount.
Curing a foreclosure is a little like curing cancer — the sooner you catch it, the better your chance of survival. Acting sooner rather than later, keeps more options open for you, minimizes costs and protects your credit. The first step is to contact your lender as soon as you think you cannot make a payment. Look for the lender’s toll free number on your monthly statement. Do not ignore telephone calls or written notices from your lender. Borrowers who try to ignore their financial problems — and their lenders’ phone calls — will likely lose their homes.
ShoreBank’s Rescue Loan Program offers fixed-rate loans to homeowners at risk of losing their homes. Who should consider applying for a Rescue Loan? To be eligible for a ShoreBank Rescue Loan you must:
• Have a subprime mortgage or other adjustable rate mortgage
• Open a ShoreBank auto debit account at the time of application
• Qualify for sustainable mortgage payment
• Be no more than 90 days past due on your mortgage payment
We look at many factors when considering a customer for a mortgage. We consider your income; your monthly mortgage payment as a percentage of your income; your total debt situation; employment history; property appraisal, and of course, your credit history. This is different than your credit score. ShoreBank will work with you if you’ve had credit difficulties. For example, let’s say you had a rough patch, and lost your job and fell behind on your payments. That would lower your score. But as soon as you could, you worked to catch up on your bills. That’s a good thing, but your credit score may still be low, because those missed payments are on your record. We look at the big picture.
Unlike other banks, we don’t sell our loans. Perhaps you’ve had the experience of getting a mortgage from a bank you knew and then after a few payments, an unfamiliar envelope with your mortgage bill arrived in the mail from a bank you never heard of. That’s because the bank you got the mortgage from sold your mortgage. Now you have to deal with a “stranger” who doesn’t know you.
We don’t sell our mortgages at ShoreBank. We stay with you for the life of the loan. That also means we want you to be successful. It’s not as important to the other banks that sell your loans if you take out a bigger loan than you might be able to handle in the future, because they’re going to sell that loan. If you can’t make payments, it will be someone else’s problem.
So we work with our customers to fit our mortgages to their needs. We want that mortgage to be successful for them (and consequently successful for us). That’s why we’re not in the same position as many other banks today. ShoreBank is safe, secure and strong. We’re not going to be bought out or taken over by the government. Your money is safe with us.
To help fund the program, ShoreBank launched a high interest online savings account, www.shorebankdirect.sbk.com. The interest paid on the online account is currently 3.50% *APY.
Call us if you have a mortgage that is wrong for you. We’ll work with you to help put you back in control of your finances.
* Annual Percentage Yield (APY) is accurate as of June 4, 2008. Rates may change at anytime and without notice after the account is opened. Fees could reduce the earnings on the account. A minimum balance of $1.00 is required to open the account and obtain the stated APY.
Tags: community development, financial crisis, foreclosed home, green banking, Rescue Loan program, ShoreBank, triple bottom line
Posted in Mortgage Lending | 26 Comments »
Wednesday, November 12th, 2008
Let’s compare two recent stories from the Home Front.
First, here’s a story, courtesy of The Wall Street Journal. In 2006, Nanci Puerto refinanced her house near San Francisco for $637,288. She and her husband “take home a combined $70,000 a year.” According to the Journal, “Each month, she makes the minimum payment on her loan, $2,416. At the same time, she watches the outstanding principal swell since that payment doesn’t fully cover the interest costs. Now she owes IndyMac $707,000 on a house that the county tax assessor says is only worth $410,000.”
The other story is from The New York Times. Todd Lawrence of Norwich Connecticut “has a traditional 30-year mortgage that he has no trouble paying every month.” Home prices in his area have fallen so much that he now owes more on his home than its market value. “’Why am I being punished for having bought a house I could afford?’ he asked. ‘I am beginning to think I would have rocks in my head if I keep paying my mortgage.’”
Now we’ll do a little math. It takes a monthly payment of $3,820 to fully amortize a loan of $637,288 at 6% interest over 30 years. Just the interest, again at 6%, on $637,288, comes to $3,185 month. And, of course, these amounts do not include real estate taxes and homeowners insurance. The fully amortizing payment is equivalent to about 65% of the Puertos’ take home pay, which is about double the rule of thumb that housing costs should be a third of net household income. No responsible lender would have made Ms Puerto a conventional, fully amortizing mortgage for $637,288. Only an irresponsible lender would have made it.
The efforts that the FDIC, which now owns IndyMac, is making to keep Mr and Mrs Puerto in their home are laudable. Restructuring Ms Puerto’s loan does far more than benefit her family. It helps the local community by saving yet another house from foreclosure, and that, in its small way, benefits the whole country. But our little math exercise cuts both ways, and we shouldn’t automatically picture Ms Puerto purely as a victim of IndyMac. She was also a gambler. She bet that the value of her home would keep appreciating. Then she could keep refinancing at “teaser” rates that would keep the payments low indefinitely. She lost.
But Mr Lawrence lost too, and he didn’t even realize he was playing. The nationwide run-up in home values caused by cheap and easy credit has led to a vicious double-digit devaluation in nearly every part of the United States. Mr Lawrence’s problem underlines an even greater danger than that of the Puertos. Ms Puerto wants to pay, but can’t. Mr Lawrence can pay, but is wondering if he should. Creditworthiness is defined not just as the ability to pay, but also the willingness to pay. Sorting out the mortgage mess must be done fairly, but rigorously. Ms Puerto must be helped without making Mr Lawrence feel like a sucker.
Note: Ms Puerto’s story appears on page 1 of the November 1 Journal in “FDIC Plan Tests Limits of Leniency” by Michael M. Phillips and Ruth Simon. Mr Lawrence’s story is in a page 1 Times story on October 31 called “Mortgage Plan May Aid Many and Irk Others” by David Streitfeld.
Tags: community development, economic predictors, FDIC, financial crisis, foreclosed home, green banking, ShoreBank, triple bottom line
Posted in Banking Industry | 4 Comments »
Tuesday, November 4th, 2008
Since the last time I blogged, the ongoing turmoil in financial and economic markets has only increased. These conditions can make people uneasy about the safety of their money. Nobody likes to feel that their money is not safe.
Thankfully, the FDIC recently increased the deposit insurance cap from $100,000 to $250,000 until December 31, 2009. This means that FDIC-member institutions—like ShoreBank —can assure customers that their deposits are insured up to $250,000. Thus, the FDIC guarantees those deposits and would refund consumers the insured amount to customers in case of a bank failure. This insurance brings a peace of mind to folks who are concerned about the safety of their money as the unusual economic conditions continue.
In case you’re not familiar, the Federal Deposit Insurance Corporation (the FDIC) in an independent US government entity that ensures that deposits in banks are insured up to a certain amount per depositor.
The ‘per depositor’ notion sometimes makes the matter feel complicated to some people, but it’s actually pretty simple. FDIC insurance is on a per depositor, per ownership type, per bank basis. “Ownership types” can include checking accounts, NOW accounts, money market deposit accounts, savings accounts, certificates of deposits, cashier’s checks, and interest checks. So if you have $250,001 in all of those products, the FDIC will only insure you for $250,000. The safest choice is to only keep the maximum FDIC covered amount per account type.
The below graph can help clarify the ownership types and FDIC coverage one family can enjoy at a single bank:
You can calculate the amount of your deposit insurance at http://www.fdic.gov/EDIE/.
I know that the credit crunch is a bit scary for the average consumer. That is why ShoreBank is proud to be a member of FDIC and why we feel it is important that you understand how the FDIC protects your deposits at ShoreBank.
Learn more about the FDIC coverage at: http://www.fdic.gov/news/news/press/2008/pr08093.html
Tags: community development, FDIC, financial crisis, green banking, ShoreBank, triple bottom line
Posted in Banking Industry | 11 Comments »
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 »
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 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 »
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 »
