The Bank of the Cascades became a willing guinea pig in August when it announced its New Beginnings Home Loan program is open for business in the Treasure Valley.
Under the program, the bank's mortgage officers may lower credit requirements for prospective home buyers who went through foreclosure or bankruptcy or were forced to short-sell their homes as a result of job loss, a health crisis or several other circumstances. The hardships must have occurred between January 1, 2007 and Dec. 31, 2012.
President and CEO Terry Zink says customers should be the first to benefit from Bank of the Cascades' return to profitability in 2012 after five quarters of losses.
"When we are successful, our communities are successful," Zink said in a news release. "We're looking for creative ways to assist our neighbors and customers along the road to economic recovery."
That's nice, but banks aren't charities. The bank's brain trust thinks the program will make money, and competitors will surely watch to see if it does, says Mike Mooney, vice president and Idaho regional manager.
"It seems like there's a lot of opportunity here," Mooney says. "If somebody finds a niche that works [and] that proves to be a reliable income source for banks, we'll see others follow."
New Beginnings is the first program of its kind in the Treasure Valley, says Gavin Gee, director of the Idaho Department of Finance, which regulates state-chartered community banks.
The financial crisis has posed a tricky question to banks, Gee says. On one hand, they need to lend money to make money. On the other, a huge pool of prospective borrowers that had solid credit until the recession now have red flags on their loan applications. The New Beginnings program is a signal that Bank of the Cascades sees opportunity in that pool.
"[Bank of the Cascades] is taking on some risk, obviously," Gee says. "The customers this is geared toward could have financial trouble again. But I think you are beginning to see banks willing to take that risk with those kinds of borrowers who can demonstrate they have the ability to repay. They are honest people. They will repay the mortgage."
Risk is relative, Mooney says. Bank of the Cascades will require 20 percent down payments, making New Beginnings loans far less risky than the zero-down loans that contributed to the housing crash.
The program will not consider applicants who purposely walked away from loan obligations and let their homes be foreclosed on. Mortgage officers will verify incomes - another practice that sometimes fell by the wayside in the 2000s.
With those hurdles, the program's impact so far has been modest. Bank of the Cascades has issued just 10 New Beginnings loans in Oregon, where the bank is headquartered, since the program was introduced there in April. No loans have yet been processed in the Valley.
An obstacle preventing some banks from offering similar programs is the credit requirements for mortgages that lenders resell to Fannie Mae and Freddie Mac. Bank of the Cascades will have to keep New Beginnings loans on its books to "season" for several years before the bank can sell them because of the borrowers' damaged credit.
Other banks are reluctant to season loans, including Zions First National Bank. Zions can make exceptions and elect to hold specific loans on its books, but the bank generally only makes loans that comply with Fannie and Freddie regulations so they can be sold promptly, says Kim Casady, Zions senior vice president and residential lending manager.
But Zions has a different business model, she says.
"We're a regional bank. Bank of the Cascades is a community bank, and a lot of them are so in touch with their communities," Casaday says. "They say, 'We know these customers. We have been intimately involved in what happened here, why they ended up in the financial challenges that they did.' They have so much knowledge about what occurred, they feel good about taking on that particular risk."
Zions has 192 branches in Idaho and Utah and more than $18 billion in assets and $12 billion in loans and leases. Bank of the Cascades has 31 Idaho and Oregon branches, $1.3 billion in assets and $900,000 in loans and leases.
Technically, Bank of the Cascades isn't offering a new product, Mooney says.
Many community banks are more flexible with prospective borrowers, says Greg Lovell, president and CEO of First Idaho Bank in McCall.
"For community banks, this is just part of what we do," Lovell says.
Zach Kyle: 377-6464, @IDS_zachkyle