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Carver Federal Savings Bank, the financial institution currently holding the top spot on the BE BANKS list, is fighting for its future. The nation’s largest black-owned bank must significantly boost capital reserves by month’s end or risk a potential shutdown, takeover or sale of the bank.

William Michael Cunningham, social investment adviser at Creative Investment Research Inc., a Washington D.C. firm specializing in minority banking, estimates that Carver Bancorp Inc., parent of the Harlem-based bank, must raise nearly $20 million in new capital by April 30, 2011, to meet orders by the Office of Thrift Supervision, the primary regulator of all federal and a number of state-chartered savings banks.

In response, Carver Bancorp spokesman Michael Herley says “we are working very hard to meet this requirement and are looking at a variety of options.” The bank, however, did not offer details to BlackEnterprise.com on its capital-raising plan.

The adversity faced by Carver comes at a time when federal banking regulators have closed or forced the sale of nearly 350 banks nationwide – including five black-owned institutions in the past six months – since the financial crisis began in 2008. In fact, Seaway Bank and Trust Co. (No. 8 on the 2010 BE BANKS list with assets of $385 million ) recently assumed control of Legacy Bank (No. 13 on the 2010 BE BANKS list with assets of $231 million) when the institution went into receivership after being walloped by the Great Recession and hefty loan losses.

Analysts say the stakes are high for 63-year-old Carver. Cunningham says its major challenge will be persuading investors to inject new equity into a bank that has lost money in recent years. Carver lost $1 million for fiscal year ending March 31, 2010 versus a loss of $7 million for the same period in 2009. Moreover, its stock has dropped to about 77 cents per share as of April 4, 2011 from roughly $6 around the same time two years ago.

Cunningham says he’s discovered the bank is working with Wall Street investment bank Keefe, Bruyette & Woods (KBW) to identify investors to replenish the institution’s capital. Carver officials say KBW has been a trusted partner for more than a decade but would not comment further. “The key for Carver is convincing investors that they have a credible plan to return to profitability soon,” Cunningham says.

Efforts to gain direct comments last week from Chairwoman, CEO and President Deborah Wright proved unsuccessful. Wright, however, alluded to some of Carver’s financial problems in an interview with BLACK ENTERPRISE in late February. As of Dec. 31. 2010, she said the institution sought to boost core capital–the minimum amount of reserves that a savings bank must have on hand in order to comply with federal regulators–from 6.36% of $743.8 million in assets, or $47.3 million, to 9%, or $66.9 million.

Cunningham says Carver’s current capital level in the 6% range is higher than the 4% threshold required by OTS and questions its actions. OTS spokesman William Ruberry says he can’t comment on Carver or any other institution his agency regulates. But, in general, OTS sets capital requirements based on the level of risk in an institution’s loan portfolio and other operations.”The greater the risk, the greater the required capital,” Ruberry says.

Carver’s problems stem from a cease and desist order the OTS issued in February. Among other demands, it requires Carver to achieve and maintain minimum regulatory capital levels, places restrictions on future credit extensions and orders that various procedures be implemented to improve the bank’s asset quality.

Carver spokesman Herley says the losses the bank suffered in its most recent two fiscal years are consistent with challenges all institutions have had to grapple with: an unprecedented recession and declining value of real estate assets.

Adds Cunningham: “The bank is being hit by a decline in borrowers’ disposable income, hurting their ability to pay on mortgages and small business loans.”

Wright has said in a previous interview that regulators are concerned about risk to the bank’s balance sheet from real estate loans for multi-family buildings and mixed-used properties negatively impacted by reductions in valuations across the bank’s geographic markets.

Wright said a significant portion of the bank’s balance sheet includes affordable housing construction loans adversely impacted by the federal government’s decision to suspend activities of Fannie Mae and Freddie Mac. She asserts: “On lending, we’ve shifted our focus to business lending where we’ve developed a specialty in small loans to contractors working for city, state and federal government agencies. In addition we’re building our loans to small grocers in New York City. Given our concentration in real estate loans, I expect this new focus to remain for some time.”

Johnson

“A recent study found that the wealth of African Americans is one-tenth that of whites, and when home equity is subtracted, it shrinks to less than 1%,” announced Robert L. Johnson, chairman of Urban Trust Holdings Inc., during a Dec. 8 speech. At the National Housing Forum sponsored by the Office of Thrift Supervision, he unveiled a plan to help curtail the drastic increase of foreclosures which instigated the country’s economic spiral downward.

“If this housing crisis causes African Americans to lose their homes, it will be a huge setback to personal wealth creation in the entire black community,” says Johnson, the founder and chairman of the RLJ Cos. who also created Black Entertainment Television (BET) in 1979 and sold it for $3 billion in 2000.

Through Urban Trust Bank, Johnson created a new entity, Homeowners First Bank. Homeowners First is an advanced lending facility or a bank designed specifically to provide temporary, advance funding to mortgage servicers. Mortgage servicers are the middlemen, who may or may not be the same company as the lender, but who retrieve money from borrowers on behalf of lenders.

Johnson has requested $1 billion from the U.S. Treasury Department’s Troubled Asset Relief Program—a $700 billion plan to strengthen the weakened credit markets—and hopes to raise an additional $7 billion to $8 billion from deposits and deposit interest from Urban Trust Bank. He proposes that the plan that will contribute to the stabilization of the housing market and save more than 200,000 people from losing their house in the first year.

“If you are a servicer for a securitization, you have to pay the interest and principle whether or not you’ve collected it,” says Alex J. Pollock, resident fellow at the American Enterprise Institute for Public Policy Research, a nonpartisan think tank. “In normal times when there aren’t that many delinquencies, it’s not that big of a problem, but in a time where there is a housing bust and widespread mortgage delinquencies, the more money they have to advance and the harder they have to work.”

In the past, when borrowers made payments late or missed them all together, loan servicers could borrow money from an advance lending facility and still pay the lenders. Unfortunately, as a result of the faltering economy, the banks that would traditionally make this type of loan to the mortgage loan servicers have stopped making them.

“Loan servicers are financially incentivized to push toward foreclosure because they can’t afford to work out loan modifications with the homeowners,” says Kathy Boden Holland, executive vice president of Urban Trust Bank, which has 16 branches located in Walmart supercenters throughout Maryland and Florida. Without advance lending facilities, the loan servicers are less willing to help mitigate foreclosures because they can recoup the outstanding balance once they resell the house.

“The kicker is this: If the mortgages are renegotiated, that means that the mortgage lenders would get anywhere from 15% to 25% less in the repayment of the unpaid balance of the mortgages,” says Bernard Anderson, a member of the Black Enterprise Board of Economists. “The question is why loan servicers would agree if they are going to take a 15% to 20% haircut on those outstanding mortgages?”

Given the costs loan servicers incur to foreclose and resell a house, and the increased difficulty for consumers to get a loan to purchase homes, there might be incentive for loan servicers to renegotiate the loan with the homeowner if they had access to advanced lending, explains Anderson, who is also a former professor of management at the Wharton School of Business.

Johnson believes that Homeowners First can drive an increase of 50% in modifications of delinquent loans, allowing upwards of 882,000 families to remain in their homes over five years, according to the Urban Trust news release. The timeline for executing the plan is dependent on whether the government approves their request and whether they can raise enough deposits.

“This is the most direct way to interact with the homeowner and at the same time protect the lenders or mortgage trustee,” says Johnson, who adds they will eventually pay all of the money back to the government. “This program is strictly aimed at providing loan modification help to homeowners through working with mortgage servicers.”

Anderson suggests that Johnson’s plan probably won’t be approved until President-elect Barack Obama’s administration is in office. Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, made a similar suggestion earlier in the year, but Treasury Secretary Henry Paulson, shot it down in favor of his plan to infuse capital into the banks. He had hoped that they would increase their lending to consumers and small businesses, something banks have been criticized for not doing.

“Bob is taking a risk, quite frankly…but it is a good idea, and he should be commended for stepping out front,” Anderson says. “It is significant that an African American businessman is coming forward to try to address the root cause of the financial crisis.”