"My biggest fear was that there would be mass foreclosures," says Raymundo, CEO of The Resurrection Project, which promotes homeownership in Chicago's low-income neighborhoods.
Growing up in Southwest Chicago, Raymundo saw Second Federal take a chance on a community often shunned by mainstream banks. It was among the first banks in the country to make home and business loans to undocumented immigrants, accepting individual tax identification numbers instead of Social Security numbers. Bank tellers spoke Spanish and accepted mortgage payments in cash.
When the housing crisis hit, communities like La Villita got the worst of it. Latino borrowers and other minority groups were disproportionately offered risky, high-interest loans, according to the Center for Responsible Lending. Property values in Hispanic communities fell by 46 percent during that time — far worse than the 32 percent drop in black neighborhoods and the 23 percent drop in white neighborhoods, according to a 2014 analysis by Zillow.
The community banks that served many of these neighborhoods didn't get the federal bailout that America's biggest banks did. In Chicago alone, at least eight banks that catered to Asian, Hispanic, and African-American communities have failed since 2008.
Raymundo was determined to intervene for the customers of Second Federal. He did not want to see their loans end up in the hands of profit-driven investors, who would likely push to foreclose many distressed properties. So he went around town looking for a community bank to buy them. When that failed, he and The Resurrection Project found a partner in a North Carolina-based credit union that serves low-income customers.
Raymundo and the executives at Self-Help Federal Credit Union decided that their partnership could only work if the credit union could buy the failed bank and its loan portfolio. First, they urged the FDIC to sell Second Federal's loan portfolio as a package deal, making sure the buyer could provide services in Spanish to mortgage holders and keep a physical presence in the neighborhood that would accept cash payments.
In November, the FDIC sold the bank's loans to Self-Help for $59 million. The loans were worth $141 million and about one-quarter of them were delinquent.
But there was one more hurdle in the plan: The FDIC had already sold the bank itself and its deposits to Wintrust, a financial corporation based outside Chicago that also owned Hinsdale bank. Wintrust CEO Edward Wehmer said he thought Hinsdale bank would meet the needs of La Villita just fine. But then he listened to the impassioned pleas from the credit union, the nonprofit group, and even Rep. Luis Gutierrez, whose district includes La Villita. Four months after buying Second Federal, Wintrust agreed to sell the bank to Self-Help.
The plan to bail out Second Federal was "insane," says Randy Chambers, CFO of Self-Help. He was worried that the changes in ownership would take a toll on staff at Second Federal. But he says he soon realized he was wrong. "They were actually stronger than we were," Chambers says.