Superintendent Neiman Addresses the Ninth Annual Bronx Bankers Breakfast
June 15, 2007
Thank you Adolfo for your kind introduction.
Since my first day on the job, I have wanted to visit the Bronx and I could not have thought of a better opportunity to do so.
The New York State Banking Department and the Business Initiative Corporation (BIC) have track record of partnering on bringing banks to underbanked communities in the Bronx.
The importance of the work the BIC does is evident in the numbers Madeline will share with you today. Their success is reliant on the participation of many people in this room today. So, I encourage you to continue partnering with them to maintain the economic growth the local communities in the Bronx are benefiting from.
During the time I have with you today, I would like to talk about three specific points.
1. The importance of serving underbanked communities;
2. The subprime mortgage industry and its impact on the Bronx;
3. And, why I believe the Bronx is a good investment.
The Bronx was an economically stable community until the mid 60’s when the entire South Bronx struggled with major construction, real estate issues, red-lining, and block busting. This included a thoroughfare that divided communities, the deterioration of property as a result of rent control, and decrease in the value of real estate.
By the mid 70’s, the South Bronx was considered one of the most blighted urban cities in the country, with a loss of 60% of the population and 40% of housing units. The entire area struggled during the 80s and 90s to recover from this damage.
However, thanks to strong community leadership and the involvement of many of you, today, the Bronx is undergoing a resurgence, with new housing developments and thriving business. From 2000 to 2006, there was a 2.2% increase in population and home ownership rates increased by 19.6%.
These trends represent a renewed commitment from the local community and their willingness to personally invest in the area. The increase in home ownership rates is a particular significant number. I will talk more about the potential issues and risks that can result from increased homeownership a little later, and outline what can be done to mitigate those risks.
1: Underbanked Communities:
The first area I will focus on today is the lack of physical bank presence, despite this economic resurgence in the area. Although we don’t know exactly what portion of the U.S. population is unbanked and underbanked, we do know that it’s a substantial number and that many consumers are forced to spend more on alternative financial transactions as a result.
It is estimated that there are 28 million unbanked people in the U.S., and 45 million underserved. And, unfortunately, most underserved communities are minority and vulnerable communities. It is estimated that 46% of African Americans and 34% of Hispanic Americans do not have an account at a federally insured financial institution.
Bringing these statistics closer to home, I am sorry to say that compared to the other boroughs, the Bronx is still one of the most under-banked communities in New York City.
In June 2006, there were approximately 135 bank branches in the Bronx, serving a population of 1.36 million people. That number equates to less than one branch per 10,000 people. When compared to 4 branches per 10,000 people in Manhattan, 2.2 branches per 10,000 people in Staten Island, almost 2 branches per 10,000 people in Queens, and 1.2 branches per 10,000 in Brooklyn, we begin to see the real opportunity for increased presence in the Bronx.
When I look at maps of the Bronx, it’s not difficult to see the areas that don’t have bank branches. These areas, which are prime locations for new bank branches, include Community districts 1, 3, 4, 5, 6, 9, and 12.
As you can imagine, there are a number of issues that arise when we have underbanked communities. When there is a lack of traditional lending products, alternative lending providers are quick to fill the void. Enticed by exotic products with high interest rates and steep fees, underbanked consumers who turn to non-traditional lenders often find themselves in a financial crisis that can have a devastating long-term effect.
To begin addressing these issues and to provide access to traditional banking products, the Banking Department developed the Banking Development Districts (BDD) Program.
The Program was designed to encourage the establishment of bank branches in areas where there is a demonstrated need for banking services. One of our aims is to reach consumers who may have no banking relationship and encourage them to become part of the financial mainstream, in turn promoting local economic development.
We also believe that the establishment of a bank branch will provide a foundation to stimulate the local economy by enhancing access to capital for local businesses.
While many institutions see the long-term potential of branching into a newly served area, there is often the short-term concern that it may take a number of years before it can attract enough retail deposits to become viable. This is where the BDD program can make a real difference.
Banks that successfully apply for an Enriched BDD Designation are eligible to receive a number of city and state incentives. The biggest incentive is the access to Public Deposits:
- Up to $20 million in below market rate deposits:
- $10 million from State Comptroller and
- $10 million City Comptroller’s Office.
BDD in the Bronx
Today, there are currently 30 BDD bank branches operating throughout New York State, four of which are in the Bronx.
We’re hoping that after this gathering, you’ll be convinced to apply and possibly boast about becoming the fifth or the sixth or the seventh BDD branch in the Bronx.
Based on initial research, we believe that the following three areas in the Bronx are prime locations for the development of a BDD branch. However, believe me when I say that this is by no means an exhaustive list - just some highlights:
- Community Board #9
- Community Board # 5
- and, Community Board #4 – specifically Highbridge, Grand Concourse, University Heights area
- It would take too long to go into detail on each area, so I will use Community Board #4 as an example.
- It is the administrative center of Bronx County.
- With a population of over 75,000 in select tracts, the area has only one bank branch.
- Companies and business organizations in area include the New York Yankees, The H.W. Wilson Company, The Bronx Lebanon Hospital Center as well as a host of industrial and commercial enterprises.
Before I move on, I would like to give you two examples of successful BDD branches can be in the Bronx.
Ridgewood Savings Bank: In September of 2006, the Ridgewood Savings Bank opened in the heart of Williamsbridge on 220th Street and White Plains Road. The branch serves one of the fastest growing areas of the Bronx with a community of over 38,000 people.
Prior to the opening of Ridgewood Savings bank, this area which has a 97% minority population had no bank branches.
In addition to being the first bank for the community, it is Ridgewood’s first branch in the Bronx. The Bank will focus on expanding mortgage lending and promoting opportunities for home ownership while expandingfinancial literacy efforts in the area, including relationships with local schools.
City and Suburban Bank: City and Suburban Bank was also awarded a BDD designation last September for a branch in the Soundview area, on Bruckner Blvd. This BDD area spans approximately 5.5 square miles, includes 11 census tracts, has a population of 43,000 people, and had only one bank branch.
City and Suburban, Ridgewood, and the two other BDD branches in the Bronx all offer:
- free financial literacy programs
- partnerships with local community-based organization and business improvement districts
- and, banking and lending services
How to apply for a BDD
So, now that I have sparked your interest in the BDD program, I’ll quickly tell you how you can get more information or submit an application.
Banks and local governments must apply jointly to have a specific area receive a BDD designation. Applications must demonstrate that the location is underbanked.
In NYC, the local government, your co-applicant, has to include the Borough President’s office and often the community board. Your key access point to the Bronx Borough President’s office, for BDD purposes, will be through the Business Initiative Corporation (BIC).
BIC can play a very important role in applying for a BDD designation by providing demographic information; identifying real estate; providing an introduction to Community Board; attendance at the Borough Board for support letter; and any other assistance you’ll need.
The Department of Small Business Services (SBS) can also help identify specific locations, streets and blocks that would be appropriate for a bank branch.
What do we look for in a BDD application?
While there are no specific product criteria required for participation, each BDD branch has added new products or services, ranging from additional ATMs, longer hours, to new mortgage or consumer products that are specifically tailored to meet the needs of the community.
We also take the specific concerns of the community into consideration and ask that the bank detail how their particular products and services fit those needs.
If you want more information, please visit our website or give us a call.
2. Subprime Mortgage – Impact in the Bronx
As I said earlier, home ownership in the Bronx increased by 19.6% in the past six years. Although the increase in other areas were not quite as high, home ownership across the city increased from 28.7% in 1990 to 30.2% in 2000 to 33.1% 2006.
While the increase in home ownership is good news, bad mortgage and loan choices for many consumers have resulted in financial crisis and, in some cases, foreclosure.
We all know that one of the benefits of providing access to standard banking products is limiting the opportunities for the non-traditional loan options I mentioned earlier. These non-traditional financers tend to target underserved communities with exotic loan options.
The damage that can result from exploiting underserved markets has become all too clear over the past six months with the crises in the subprime mortgage industry.
This year alone, it is expected that over 30% of subprime ARMs will reset for the first time, with approximately 25% resetting in 2008. Assuming no change in interest rates, the average 2-28 hybrid ARM originated in 2005 will reset this year from a rate of 7.3% to 10.3%. Those originated in 2006, will go from 8.4% to 11.4%. And, many of these will be able to be reset again in six months.
Default rates are already rising steadily across the state as a significant number of overburdened consumers are unable to withstand the payment shock when their adjustable rate loans reset and their payments increase overnight.
In just one year, from the end of 2005 to the end of 2006, foreclosure rates have increased by approximately 42% nationwide. This is a shocking spike in such a short time period, and New York has not been spared. The statewide increase in foreclosure rates at 40% is in step with the national trend.
When we look at the Bronx, there are two areas that are especially hard hit: Belmont/East Tremont and Williamsbridge/Baychester.
Two weeks ago, I testified in Albany on the subprime mortgage lending industry with a range of industry representatives and community groups.
I believe that we are all responsible for helping the impacted communities recover from this crisis. We each have a very specific role to play, ranging from increasing access to traditional loan products, working with consumers who are struggling by offering workout arrangements, and partnering with community groups in providing support and guidance for impacted consumers.
As these issues and statistics surfaced over the past few months, it was clear that decisive government action was also needed. In response, Governor Spitzer created an interagency Task Force to bring together all state agencies and departments that relate to mortgage issues. The HALT Task Force, as it is known, is charged with the mission to “Halt Abusive Lending Transactions.”
As Chair of the Task Force, I’m proud to say that we have already identified and are in the process of addressing six core initiatives:
- We are analyzing foreclosure and lending data to identify borrowers and communities most at risk.
- We are developing loan and refinance programs -- in conjunction with SONYMA -- to help homeowners whose current loans are inappropriate for their financial circumstances.
- We are creating statewide outreach and educational campaigns to assist the state’s most vulnerable borrowers.
- We are considering various legislative and regulatory changes to enhance compliance and expand consumer protections.
- We are working with the Division of Human Rights in evaluating examination and complaint files to identify potential patterns of discriminatory lending behavior.
- And finally – we are continuing to coordinate with law enforcement agencies in pursing enforcement actions against those engaging in wrongful conduct. In fact, we recently established a focused Mortgage Fraud Unit.
The Task Force is also reaching out to the community and industry through a series of day-long HALT summits. The first summit was held in Manhattan on April 11, and a second summit will be in Buffalo on June 28. These events reach down to the grassroots level, which is a crucial first step in identifying and responding to the regional challenges facing New Yorkers.
3. Bronx is a good investment
Despite these subprime and foreclosure numbers, I can assure you that I believe the Bronx is in a unique position with tremendous growth opportunities in the real estate and construction markets.
Between 2000 and 2006, Bronx property values increased at an average annual rate of close to 10%, a higher rate than experienced in Manhattan. And, according to the New York City EDC, in 2006 there were over a 1,000 new construction projects in the Bronx with a total dollar value of over $2 billion.
I’m sure you are well aware of the current projects under way, which include the new Yankee Stadium, Gateway Center at Bronx Terminal Market, Hub Retail and Office Center, and the South Bronx Greenway Plan to improve access and utilization of South Bronx Waterfront.
These projects symbolize the rejuvenation of the Bronx. They represent economic growth, the creation of new jobs, and future opportunities for new projects and investments.
According to Adam Weinstein, Chairman of the Phipps Community Development Group, one of the nation's largest not-for-profit developers, owners, and managers of affordable housing, "The story today in the Bronx is not as much the affordable housing story as it is the beginnings of a more mixed income economy, and one that will better support retail uses."
The outlook for the Bronx is bright.
With a growing population and large underbanked areas, there is a unique opportunity for banking institutions to partner with the local government on serving local communities and participating in the growth of this developing borough.
Thank you again for this opportunity to speak today and I look forward to partnering with at least some of you on potentially increasing access to banking products and services through our BDD program.