Frank and Boston bank defend bailout help

By Michael Kranish and Ross Kerber, Globe Staff

WASHINGTON _ House Financial Services Committee chairman Barney Frank today confirmed a report that he asked a Treasury Department official to consider giving bailout money to Boston's troubled OneUnited Bank - which ended up getting a $12 million federal loan - but Frank said the action was a legitimate effort to protect "the only minority-owned bank in Massachusetts."

OneUnited's chief executive officer, Kevin Cohee, said in an interview last night that the bank received no special help and applied for the federal money like any other institution.

"We think it is wonderful and we truly appreciate that anyone steps up to try to help minority banks," Cohee said, when asked about Frank's involvement. But Cohee said his bank wound up applying for money from the Troubled Asset Relief Program "just like anybody else." He said there was "no special program for us, no special pot of money." He said that his bank has been profitable in all but one quarter in the last 10 years and qualified for support on its merits.

Frank, a Newton Democrat, said Cohee came to Washington last fall as Congress was discussing the $700 billion financial rescue package. Frank said OneUnited bank's problems stemmed from its stock holdings in Fannie Mae and Freddie Mac, the quasi-governmental mortgage companies that were taken over by the federal government last year. Cohee said OneUnited suffered a $51million loss as a result. Frank said that loss was "through no fault" of OneUnited and he wanted to help while the bailout bill was being considered last September.

At the time, OneUnited was dealing with an investigation by bank regulators. In October, federal and state regulators entered into a "cease and desist" order with OneUnited, citing problems with inadequate capital, a failure to provide adequate supervision, and the bank's "excessive compensation, fees and benefits to its senior executive officers." The bank, for example, was required to stop paying expenses related to a California beach home and to stop providing a bank-owned Porsche SUV to executives.

Cohee said that while the bank signed the cease and desist order, and is abiding by it, he denies all of the charges in it. "We don't admit guilt," he said.

Two months later, OneUnited was awarded $12 million under the government's financial rescue program. Federal regulators said a cease and desist would not prevent a bank from receiving the bailout money. OneUnited underwent a "safety and soundness" review during its TARP application, and "the same regulators that did the cease and desist recommended us for the TARP," Cohee said. . The bank also raised more than $20 million from shareholders to recapitalize after its Freddie and Fannie losses, Cohee said.

Frank's effort on behalf of OneUnited was first reported today by The Wall Street Journal, under a headline that raised questions of "political interference." Frank said in the interview that he was proud of having tried to help OneUnited Bank and saw nothing wrong with his action. "To help a minority bank stay in business - that is what democracy means," Frank said. Frank and Cohee both stressed in separate interviews that the decision was up to the Treasury Department and banking regulators.

However, Steve Ellis, vice president of the non-partisan Taxpayers for Common Sense, which has been critical of the bailout provisions, said Frank's effort underscored the problem with the program. "We are talking about trying to save the nation's financial system, not about saving my hometown bank," Ellis said."It creates an opportunity to favoritism and power plays in the corridors of the nation's capital."

OneUnited says in its news releases that its mission is to be the "premier bank serving urban communities." Much of its lending appears to be for large apartment buildings or to community organizations. It has repeatedly received annual grants from the US Treasury Department for housing production under a special community development program. OneUnited makes few direct loans to homebuyers, and its business loan portfolio is small too, according to federal financial records.

In 2005, OneUnited received poor grades for its lending under the Community Reinvestment Act. The Federal Deposit Insurance Corp. gave it “substantial noncompliance’’ for OneUnited's CRA lending in Florida, and a “needs to improve’’ grade for its work in Massachusetts. It got an overall score of “satisfactory’’ that year, and improved grades in a similar review two years later.

Meanwhile, federal mortgage data shows that OneUnited made only eight residential mortgages for one- to four-family properties in 2007, none of them in Boston.

Cohee said the bank wasn't an active lender to homebuyers because too many borrowers were instead seduced by the easy terms offered by subprime lenders, such as no-money-down mortgages, while it stuck to traditional loans that require 20 percent down. He said he and other bank officials warned members of the community about the dangers lurking in those loans, but "we couldn't get heard."

Moreover, he said OneUnited avoided making many homeowner loans because it sensed the real estate market was overheated and due for a correction that would damage the value of those mortgages.

He said the reason the bank received the low marks on community lending in 2005 was precisely because of its reluctance to issue mortgages in an overheated market, "And we believe without a question we’ve been proven right," he said.

Frank said he took two steps that he believed would help OneUnited and, he stressed, other small banks in a similar situation. First, without naming OneUnited, he inserted general language into the financial rescue legislation designed to help banks that suffered from holding the Fannie Mae and Freddie Mae stock to be eligible for the bailout money. The relevant paragraph said the government should provide financial assistance to small banks serving low- and moderate-income populations and were "well or adequately capitalized" as of June 30, 2008 but were hurt by the devaluation of "government-sponsored enterprises stock." Frank said that OneUnited fit that classification. Cohee said the bank qualified without the provision.

Second, Frank said that he mentioned the general plight of minority-owned banks to then-Treasury Secretary Henry Paulson and said he mentioned the OneUnited case to Paulson's assistant for legislative affairs, Kevin Fromer.

"We put this in to protect minority banks, no question about it," Frank said.

Paulson and Fromer, both of whom left the government as a result of the transition to the Obama administration, could not be reached for comment. However, a Paulson spokeswoman, Michele Davis, said that the Treasury Department would not have given OneUnited the $12 million unless the government's bank regulators approved the deal. A spokesman for the regulator, the Federal Deposit Insurance Corp., said he was not allowed to comment on a specific bank case.

OneUnited executives have not contributed to Frank's congressional campaigns, according to the database of Center for Responsive Politics.

A second Massachusetts member of the House Financial Services Committee, Representative Michael Capuano, said he also met in Washington last September with OneUnited officials about their problems and supported what he called a general provision that would have helped all small banks who suffered from the drop in Fannie Mae and Freddie Mac stock. Capuano said his efforts were designed to help an array of banks with such holdings and said he never discussed OneUnited with Treasury officials.