Wednesday, April 15, 2009

Black-owned bank has few urban loans

We note today's article in the Boston Globe: "Black-owned bank has few urban loans: OneUnited sought aid as community 'beacon'." OneUnited Bank got $12 million from the US bank bailout fund.

We take issue with several items in the story. Below, we reproduce sections of the story we have difficulty with and note our reply.

"OneUnited's chief executive, Kevin Cohee, said the bank is helping the community in other ways - by focusing on loans to churches and developers of apartment buildings. He said the bank pulled back on home mortgages because he saw the housing market overheating. He said he didn't want to compete with the many mortgage brokers peddling subprime loans with unrealistic rates and terms, loans that borrowers ultimately would not be able to repay. 'We knew this bubble was developing in residential housing' as early as 2004, Cohee said in an interview. 'If we had participated in inner-city housing lending, . . . we would have been out of business.'

(Note: this is disingenuous at best, false at worst. If they knew the bubble was forming, they should have issued a warning. Keep in mind that Carver Federal, another Black owned bank, decided to attempt to help African Americans victimized by fraudulent subprime lending, something OneUnited failed to do. In addition, as cited below, the bank went from making 74 multifamily loans in 2006 to making only 2 in 2007. Such activity can only be explained in one of two ways: if they knew a crash was coming, they decided keep this information to themselves and make as many loans as they could as quickly as possible. They would have done so in order to maximize short term profit. This implies that these are not very good loans, and that you would sell them as soon as you can. If they did not know, then Mr. Cohee is lying when he says they did.)

Both Guscott and Grimes said they had been with the bank since 'the beginning,' 40 years ago, when it started as Unity Bank & Trust. Grimes, who has done business and mortgage banking with the institution, said the community needs OneUnited. 'We've been successful banking with them, and we've stuck with them,' he said.

(Note: Boston needs a black bank, and no one argues with OneUnited's "success", but if they are going to use service to low and moderate income communities as justification for $12 million in Federal aid, OneUnited should be required to prove that they are, in fact, lending in low and moderate income communities.)

But the recipients of these loans are a far cry from the sort of customers the bank referred to in its Sept. 6 letter to the US Treasury: 'Unlike majority banks, which principally focus on profit, the express mission of minority banks is to promote these underbanked, underprivileged communities,' the bank's chief counsel, Robert Cooper, wrote.

(Note: For most minority banks, true. Not so for OneUnited.)

At the time it first asked for federal help, though, OneUnited was in the midst of an ugly bank examination. It had invested more than $50 million in securities of mortgage giants Fannie Mae and Freddie Mac - investments that became worthless when the government took over the agencies last September. Cooper, writing on the letterhead of the National Bankers Association, a trade group of minority-owned banks for which he was incoming chairman, asked the government to buy the Fannie and Freddie securities from minority banks in order to save them: 'To put it bluntly, we are seeking Treasury action on this proposal this week.'

The Treasury did not act on that specific proposal, and the bank ultimately had no trouble raising the capital it needed from shareholders - $20 million, Cohee said.

(Note: Both Bear Stearns and Merrill Lynch raised funds in the months leading up to their failure.)

Regulators in October (2008) concluded in a cease-and-desist order that OneUnited also had poor standards for qualifying and documenting loans, and gave top executives excessive pay and perks. Two of the perks regulators targeted were a $6.4 million beachfront Santa Monica mansion Cohee used while in California and a Porsche SUV he drove on company business in Boston. As ordered by regulators, the car has been sold and the bank is no longer paying for the house, which Cohee said he is selling.

Cohee said the house and car were necessary for conducting business - and modest compared with the jets and fleets of vehicles that larger banks often have. 'This wasn't some excessive spending splurge thing. This was a calculated decision to provide housing for our executives when they would travel from Boston and Miami to L.A.,' Cohee said. 'We wanted the bank to have an image of stability in the community.'

(Note: This clearly was excessive spending. $6.4 million represents 1% of bank assets.)

Cohee's view of community lending has at times clashed with that of regulators and advocates for urban borrowers. Being a community bank, he said, is not 'just lending to poor people.'

(Note: We agree, but it does not involve NOT lending to poor people, either.)

OneUnited says it made more than $600 million in loans in the past five years to churches, affordable housing, office buildings, and retail stores, mostly in low- to moderate-income communities such as South Central Los Angeles and Roxbury.

(Note: $600 million is, most likely, an exaggeration.)

As we said in August, 2007,

"Major market institutions are now, as the troubled Bear Stearns reveals, feeling the negative effect of allowing these practices to flourish. Bear Stearns may be in real danger - it's stock decreased in value by 27% over the last month. We do not expect, but would not be surprised if the firm failed, another casualty of arrogance and greed."

We do not expect, but would not be surprised if OneUnited failed, another casualty of arrogance and greed.