It’s all too easy to follow the herd over the cliff. Colossal banking institutions are crumbling. The Dow Jones is plummeting. Capital markets have dried up. The home loan crisis, says President Barack Obama, is “unraveling home ownership, the middle class, and the American dream itself.”
It’s little wonder people are nervous about their financial futures and their homes. That includes bank executives such as Babette Heimbuch, Chairman and CEO of First Federal Bank of California. The bank cut 10 percent of its workforce, 62 jobs, and was ordered by the Office of Thrift Supervision to stop lending. Heimbuch is knee deep in what she calls, “a world economic slowdown.”
While dealing with her bank’s problems, she is focusing on worried homeowners. “We want people to stay in their homes,” she insists. The Los Angeles Business Journal backs her up. The newspaper reports that First Fed has been involved in a loan-modification effort since 2007, long before failing mortgages were front-page news. That effort has paid off. The number of the riskier option adjustable rate mortgages is down from 1,801 in 2007 to 913 in 2009.
Beverly Macy, Managing Partner at Y&M Partners, a strategic advisory firm in Beverly Hills, has higher hopes for First Fed’s success than for other banks. “The community banking industry has been able to remain fairly stable despite the troubles larger commercial banks have faced this year, precisely because they adhere to the community banking model which means veteran bankers know their customers and detect problems early on.”
Heimbuch knows that business problems are cyclical, and she has seen too many ups and downs in her 26-year career to be given to vitriol. “When I came to the industry, it was in dire straits and the reason was that the government controlled interest rates.” She explained that those controls made lending more expensive than borrowing, so home mortgages were unprofitable. Today’s problems with collateralized mortgages originate in issues far more complicated than interest rates. “Wall Street did some ugly things with those derivatives. They did very complex things with the mortgage structures that nobody understood,” she said.
Heimbuch certainly understands mortgages. With more than 25 years as a top executive at First Fed, a community bank with 39 branches throughout Southern California, she has seen the nature of mortgages change. In the past, a single family home mortgage was held by the home owner, someone who scrimped to scrape together enough for a reasonable down payment. Today, in the aftermath of “no money down” quick-and-easy real estate investing, not every mortgage holder is a homeowner.
In this unpredictable financial environment, bank customers are asking, “Where should I keep my money?” Heimbuch’s recommendation “The average person should ask one question, and that is “Are you FDIC insured?’” The Federal Deposit Insurance Corporation insures most deposits up to $100,000 per account and has now expanded that coverage. Visit www.fdic.gov for more information. Better yet, stop by any First Fed branch and talk with one of their bankers. “People with money want to talk to a person about their money.” Keeping your interest in the community, and knowing the folks you deal with face to face can make a big difference. When fear is the fever, communication can be the cure.