The Heroes Who Saved Chicago’s Immigrant Homeowners

An unusual grassroots partnership rescued a local bank and made avoiding foreclosure its No. 1 priority.

This townhome was listed with other homes to be sold in a foreclosure auction in July, 2007 in Chicago, Illinois. Hundreds of local homeowners in the city's La Villita neighborhood faced the threat of foreclosure until their troubled mortgages were rescued by a grassroots partnership that saved their bank.
National Journal
Alexia Campbell
June 12, 2014, 9:15 a.m.

Jeidy Rodrig­uez de Aguilar nearly lost her two-story house in South­w­est Chica­go to fore­clos­ure last year. The home’s value had dropped, the mort­gage in­terest rate had spiked, and her hus­band couldn’t find enough work as a roof­er. They were six months be­hind on the mort­gage.

Now, a year later, the couple’s two young­est chil­dren play on a new tram­po­line in the back­yard of their Brighton Park home. They are no longer be­hind on their pay­ments. “It’s such a re­lief,” says Aguilar, 35, a nat­ive of Monter­rey, Mex­ico. “Own­ing a home was a dream come true for us.”

Aguilar is one of hun­dreds of im­mig­rant homeown­ers whose troubled mort­gages were res­cued in an un­usu­al grass­roots part­ner­ship to save a loc­al bank. Their mort­gages were set for the auc­tion block after the FD­IC in Ju­ly 2012 shut down Second Fed­er­al Sav­ings & Loan As­so­ci­ation of Chica­go, which served more than 10,000 cus­tom­ers who were pre­dom­in­antly Mex­ic­an im­mig­rants. The FD­IC sold the bank’s three branches to a loc­al fin­an­cial cor­por­a­tion.

News of the takeover spread through the La Vil­l­ita neigh­bor­hood, long­time home of Second Fed­er­al and the heart of Chica­go’s Mex­ic­an com­munity. Raul Ray­mundo, who runs a non­profit com­munity-de­vel­op­ment or­gan­iz­a­tion nearby, grew anxious think­ing about what would hap­pen to the bank’s 1,100 mort­gage loans after the sale.

“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.

Rudy Med­ina, who man­aged the Second Fed­er­al branch in La Vil­l­ita at the time, says his staff did struggle to keep up mor­ale. But the hard­est part was watch­ing cus­tom­ers lose trust in the in­sti­tu­tion they had grown to know as “el banco del pueblo” (“the people’s bank”). “People were walk­ing in the door and tak­ing their money,” says Med­ina, who was born and raised in La Vil­l­ita. “It was our job to pre­vent the run­off.”

Self-Help staff sat down bank em­ploy­ees and ex­plained that Second Fed­er­al would con­vert in­to a cred­it uni­on, with a fo­cus on keep­ing homeown­ers from go­ing in­to fore­clos­ure. “My first thought was, this is too good to be true, be­cause this is ex­actly what we need,” says Med­ina, who is now pres­id­ent of Second Fed­er­al.

When the failed bank re­opened as a cred­it uni­on in Septem­ber, mariachis paraded through La Vil­l­ita to cel­eb­rate. A large sign that reads Bi­en­ven­idos a la Vil­l­ita still hangs above the door to the icon­ic art-deco build­ing. The flags of Mex­ico, the United States, and Chica­go wave above.

Now Med­ina and his staff con­tin­ue work­ing with The Re­sur­rec­tion Pro­ject to reach homeown­ers who can’t make their mort­gage pay­ments. In most cases, they lower in­terest rates, re­place ad­justable rates with fixed ones, and ex­tend the life of the loan. So far, they’ve mod­i­fied 150 troubled mort­gages, sold 20 homes through short sales, and fore­closed on just eight homes. The de­lin­quency rate that peaked at 29 per­cent in Feb­ru­ary 2013 had dropped to 13 per­cent as of this April.

One of those loan modi­fic­a­tions kept Jeidy Aguilar, her hus­band, and their four chil­dren in the Brighton Park house they bought 10 years ago. Second Fed­er­al lowered the in­terest rate from 8 to 3 per­cent, cut­ting their monthly $1,400 pay­ment nearly in half.

Though roof­ing jobs are still scarce, Aguilar said the fam­ily now has enough money to pay their bills. And to buy a little tram­po­line for the kids. “This house is for them,” says Aguilar. “So they don’t have to struggle the way we did.”

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