Still lending a hand in old neighborhoods

Banking: The dwindling ranks of small lending institutions, forgoing bigger profits, choose to focus on helping their neighbors buy homes and pay the mortgages.

April 18, 1999|By Charles Cohen | Charles Cohen,SPECIAL TO THE SUN

Time doesn't quite strike true at the Hull Federal Savings Bank, a Locust Point rowhouse office with a varnished plywood teller counter where computers work in tandem with an old Royal typewriter.

These idiosyncrasies have seeped into the bank's operating system, which leads past president and current financial officer Wilbur Baumann, 83, to declare: "We stopped taking new customers."

Baumann, who's been there for 48 years, knows the bank could make more money, but he said Hull Federal is organized to help people buy houses and pay for mortgages. And he's more concerned with keeping the institution, which has $8.3 million in assets, financially sound than with continuing the profit hunt.

Established in 1911, Hull Federal is one of a handful of small banks and savings and loans that have survived the onslaught of mega-banks -- and the savings and loan crisis in the 1980s.

Lenders such as Hull, Golden Prague Federal Savings & Loan Association and Kopernik Federal Savings Association cropped up in tightly-knit ethnic neighborhoods with the focus of helping their fellow countrymen and neighbors buy their first homes.

Many have almost fabled immigrant beginnings in which a baker or a grocery with a bit of extra cash would lend money to neighbors to purchase homes. Others started as families pooling their money to buy each family a home.

Some customers still have thin, weathered payment books used when relatives would walk to stores serving as banks to pay a quarter or 50 cents a week to pay off a mortgage.

Such nostalgic enclaves aren't just fodder for great storytelling in a banking world where merging is seen as an act of survival. The officers of small banks believe that some customers still want the old-time service, even if that means missing out on the lowest mortgage rate. While the customer base has broadened, the emphasis on homebuyers remains unchanged.

In the name of customer service, many of these banks stubbornly hang onto the practice of not selling mortgages on the secondary market, as many lending institutions do.

"We're not interested in selling and getting the quick money," said Michael Baumann, a director with Hull Federal and Wilbur's cousin. "We work with people."

With a wry smile, Michael Baumann recalled articles in financial magazines about the growing recognition that a little hand-holding can avert a foreclosure. At Hull Federal, the staff may work with a struggling customer, a neighbor who has been banking there for generations.

"We've only had one foreclosure since 1911," said Wilbur Baumann. "And that was the undertaker, and he died. We have never penalized anyone."

In Baltimore, these small, independent banks function somewhat like institutions found mainly in rural communities. Michael Hindman, president of ICBA Mortgage, a subsidiary of the Independent Community Bankers Association, estimates that 90 percent of the group's 5,300 members maintain their own mortgage portfolios.

"The bedrock of community banking is its customer relationships," Hindman said.

For the last 25 years, the secondary market has been growing to a point where more mortgages are being sold then being kept.

Alan Ingraham, vice president of MNC Mortgage Corp. in Lutherville, said neighborhood lenders are focused on the community they serve. They know the risk of making the loan, whereas larger mortgage companies have a need to "balance their regional risk and the diversity of their portfolio."

Baltimore is a city of small neighborhood and ethnic banks, mainly because it's a metropolitan area of neighborhoods, a good breeding ground for small institutions.

Despite all the talk of a changing Baltimore, Ingraham said, the city is still provincial to an extreme, more neighborhood-oriented than other industrial cities such as Philadelphia and Boston.

Layers of municipalities

Baltimore doesn't have the layers of municipalities like Philadelphia with its incorporated townships and boroughs. So it's harder for larger banks to come in and buy the neighborhood banks that Ingraham estimates occupy 35 percent to 40 percent of the local market.

"I don't think [neighborhood banks] are facing extinction at all," Ingraham said. "I consider them as a very viable competitor."

Golden Prague President Joseph Platek is hoping to reap the benefits of a backlash against the continual merging of financial institutions. He said as large banks add more fees and red tape, customers long for the personal services that they no longer have access to.

Golden Prague, on McElderry Street, also is sticking to the practice of keeping mortgages it originates. In doing so, it continues to have direct access to customers -- and customers know their mortgages will always be handled in-house, causing less hassle should a question arise.

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