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Best Practices: Avoiding Subprimes

HomeStreet Bank is a family- and employee-owned community bank with headquarters in Seattle and branches throughout the Pacific Northwest and Hawaii. Bruce W. Williams, HomeStreet’s CEO and chairman, is the grandson of HomeStreet’s first employee, W. Walter Williams. The company was started in 1921, and Williams’ father led the bank from 1960 to 1990.

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With all of the problems associated with the subprime lending issues (see p. 16), we asked Bruce Williams how HomeStreet dealt with the crisis.

“As a privately owned company that has been in business for 86 years now, we always try to take a long-term perspective. This means making business decisions that are consistent with our longstanding corporate values,” Williams said. “We chose not to get involved in much of the subprime activity because in the long run it looked like it would be bad both for our customers and our shareholders.”

HomeStreet follows four guiding principles:

  1. Help our customers achieve their goals.
  2. Create a great place for our employees to work.
  3. Partner with the communities where we do business.
  4. Create a competitive long-term return for our owners.

“For every business decision, we consider these principles,” he said. “We try not to trade off one for another, but look for solutions that help us meet all of them. When it came to decisions on the subprime market, we saw where others were making quick money. But we thought that some of the subprime loans were not sound investments, and we didn’t think they would serve our customers well in the long term.

“It looks like we made a good decision at this point. While that market was growing and others were profiting in the short term, we missed out on that frenzy. But we don’t have a singular focus on making money, and we believe our choice has worked out well.”

But you have to be careful in talking about the subprime market, he added. “In our goal to serve the community, we are greatly involved in the area of affordable housing. We have been working in this area for decades, trying to create opportunities for first-time home buyers where it is very difficult to break into a high-priced market. We work with Fannie Mae and the government backed loans, like Federal Housing Administration (FHA) and Veterans Administration (VA) geared to the lower end of the market.”

In addition to affordable housing, HomeStreet has an active community program. Each year, they contribute at least 2 percent of pre-tax profits to organizations in their communities. HomeStreet is not a foundation; it gives charitable contributions as part of active partnerships with organizations that focus on specific community needs including homes and housing, parks and open spaces, and organizations where HomeStreet employees are intimately involved.

“A business is a part of the community and we have always taken the position that this is what it means to be a good neighbor,” said Williams.

“As another part of our community, we consider our relationship with our regulators to be of vital importance. Our compliance officers are in place to help with this relationship, to understand the spirit and the legal aspects of regulations. By taking these relationships seriously, we believe we are in the best position to do the right thing,” he added.

Editor’s Note: Some would argue that this set of guidelines might work for a privately held firm, but wouldn’t work in a larger, publicly traded company. It is interesting to compare the four guidelines, and the order in which they are given, with the Johnson & Johnson Credo (seeEthix 53, May/June 2007).

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