Ron Grzywinski and Mary Houghton | community bankers

Lending dollars and hands.


They built from a risky proposition, "What if your core business had some purpose other than making money?"

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In the midst of the subprime mortgage crisis, most bankers are fleeing from at-risk homeowners. But a bank in gritty south Chicago is running toward them with open arms. ShoreBank is courting low-income homeowners threatened by exploding adjustable-rate mortgages and persuading them to refinance with stable fixed-rate mortgages. Since September, the bank has closed on 26 loans worth $4.5 million—with more to come.

The program is typical of ShoreBank, which devotes itself to investing in neighborhoods that many bankers wouldn't dare enter, professionally or personally. In south Chicago alone, this little economic engine-that-could has invested nearly $3 billion, financing, among other things, 52,000 affordable housing units. And ShoreBank did it all while exceeding performances of some larger, traditional banks. Today the ShoreBank Corp. operates in five states and is worth $2.1 billion, officially making it a big player, albeit one fixed on helping the little guy.

Community activists by night and bankers by day, Ron Grzywinski, Milton Davis, James Fletcher, and Mary Houghton founded ShoreBank in 1973 as a reaction to the civil rights movement and President Johnson's big-government Great Society. A better fix, they reasoned, would be to give minorities access to capital. At the time, banks routinely denied loans to minorities, a practice called redlining. The founders' idea was based on a risky proposition: "What if your core business had some purpose other than making money?" says Houghton, now president of ShoreBank Corp.

With a $2.4 million loan, they bought their own bank in the South Shore, a community plagued by white flight and urban decay. Their colleagues thought they were crazy. "There was a general bias in dealing with minorities," says Grzywinski, a Chicago native and chairman of ShoreBank, "and a bias that this was the role of the government, not the private sector." The plan to spur small business largely failed, for the usual reasons: intense competition from suburban chain stores and malls. While ShoreBank managed to develop a nearby shopping center that provides the community's only supermarket and financed the purchase of single-family homes, it found its real niche in an unlikely place—rental housing.

Rehabs. Houghton, 66, and Grzywinski, 71, (Fletcher and Davis have died) call the secret to their success "Ma and Pa rehabbers"—regular folks willing to take a gamble on fixing up and renting out neighborhood buildings. By focusing on south Chicago, ShoreBank saw each loan and rehabilitated building reinforce the value of its surroundings. In the beginning, the bank required rehabbers to live on site, avoiding the plague of absentee landlords. The bank also encouraged external renovations noticeable to passersby to boost morale. "If a bank disinvests in a community, it meant the neighborhood was going down," Grzywinski says. "We believed the opposite was true."

Grzywinski took his fight to Congress, where he was the sole banker to testify in support of the Community Reinvestment Act, which banned redlining in 1977. ShoreBank has also advised Muhammad Yunus, the Nobel Prize-winning founder of Grameen Bank, which launched the microcredit movement in India.

The bank even inspired then Gov. Bill Clinton, who launched the similar Southern Development Bancorporation in Arkansas in 1988. As president, Clinton established the Community Development Financial Institutions Fund, which supports more than 50 community development banks and funds. "All these investments," Clinton told U.S. News, "were inspired by the ShoreBank model and the leadership of Ron Grzywinski and Mary Houghton."

Today, ShoreBank has added environmental impacts to its mission, offering free energy audits of homes and pushing energy efficiency improvements with home loans. The bank has expanded to Cleveland, Detroit, and the Pacific Northwest, while ShoreBank International has taken its ideas overseas. From her desk in the original branch in South Shore, Houghton nevertheless considers the bank's investment here "the single most important thing we've ever done. It's a nice neighborhood now."