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These banks step in to avert foreclosure

A handful of community-development institutions offer modified interest rates to at-risk borrowers.

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These new Legacy customers are primarily African-Americans and Hispanics who fell behind on payments only after their loans reset at higher rates. They're not bad risks, Ms. Henningsen says, because they had always paid on time when their monthly payments were a manageable size. Now if they pay on time over a 12-month probationary period with Legacy, they become eligible for a 15- or 30-year fixed-rate mortgage.

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To keep rates and payments low for new borrowers, Legacy pays most depositors a modest 2 percent on certificates of deposit. (Jumbo CDs in excess of $100,000 can earn as much as 3 percent.) Legacy aims to raise $15 million in deposits for the rescue program because, in terms of need, Henningsen says, "this is just the tip of the iceberg."

ShoreBank in Chicago is troubleshooting on a larger scale. The bank issued 90 Rescue Home Loans worth $16.6 million to homeowners between October and April. It aims to issue another 510 rescue loans before the end of 2008.

Those rescued are often ineligible for refinancing elsewhere. That's because they're as many as 90 days delinquent on their current payments, and/or they have mediocre credit scores. But ShoreBank isn't worried because these borrowers are still qualified, says Michelle Collins, director of mortgage lending. They just got in trouble when their monthly payments ballooned to unsustainable levels.

"This is a crisis," Ms. Collins says. "I have a mandate to rescue as many home­owners as possible, [and] we're limited primarily by a lack of capital."

Depositors can fund the program through three ShoreBank products: an online savings account, an IRA, or a CD. They also support a loan program for energy-efficient housing rehabilitation in low- to moderate-income Chicago neighborhoods. Each of these banking products is designed to pay competitive rates. [Editor's note: The original version did not clearly list all methods depositors can use to support ShoreBank's rescue program.]

Other community-development banks are tackling other aspects of the housing crisis. Sunrise Community Banks, for instance, has targeted North Minneapolis and East St. Paul neighborhoods in order to, according to CEO Reiling, "be sure they don't fall into despair."

He says that risk is real. Plummeting home prices in neighborhoods riddled with foreclosures could set in motion a cascade of troubles, from sinking property tax bases to the conversion of vacant homes into crack dens.

The bank's solution, which begins next month, is to capitalize two locally trusted nonprofits: the Greater Metropolitan Housing Corporation and Dayton's Bluff Neighborhood Housing Service. They in turn will try to stabilize the market by buying homes, doing renovations, and providing financing to qualified homebuyers.

This month, Sunrise launched a specialized product for savers eager to support the initiative, which it hopes will be a model for revitalizing hard-hit neighborhoods around the country. These CDs, earmarked for the Sunrise Home Ownership Alliance Fund, require a five-year commitment and pay just 1 percent annualized interest. Depositors will get a personal touch: photos and stories from families who buy homes through the bank's program. Reiling contends that a low interest rate plus a long-term horizon will help the bank keep its promises to depositors as well as home buyers, who'll likely be counting on low mortgage rates.

Even if borrowers do repay rescue-related loans, depositors need to be comfortable with another risk: inflation.

Driven up by rising fuel and food costs, inflation is approaching 4 percent a year, which means investors who settle for significantly less are actually seeing their investments shrink in terms of real dollars and buying power.

What's more, community-development banks can't help in every troubled situation. Homeowners who are holding loans worth more than their homes, for instance, can't receive refinancing even at ShoreBank. So depositors who support these ventures need to know their social impact will be limited by extenuating circumstances.

Consumer advocates, for their part, argue a long-term fix to the housing crisis must include new federal initiatives. But in the meantime, they're applauding efforts among community-development banks to ease burdens faced by their customers.

"If banks have a bigger mission [than simply turning profits]," says Ira Rheingold, executive director of the National Association of Consumer Advocates, a professional association in Washington, D.C., "then they really can make a difference here."