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In An Increasingly Diverse Community, Sunrise Banks Removes Barriers To Homeownership

In An Increasingly Diverse Community, Sunrise Banks Removes Barriers To Homeownership

by ESG Business Institute -
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The Twin Cities region is home to more than 3 million people, including nearly a third who identify as people of color and a growing immigrant population. In many ways, it serves as a microcosm of the U.S. population, which continues to become more racially diverse, especially among younger generations. These demographic changes have economic and social implications, prompting some businesses to innovate the products and services they offer to better serve younger, more diverse customers and address systemic barriers that maintain the status quo.

These include legacy redlining practices by some banks and other institutions that refused to issue mortgages, insurance, and other financial products for people living in certain neighborhoods. In essence, it’s a form of racial discrimination that led to generational wealth gaps and a culture of inequality. But some businesses and organizations are working to end these extractive and discriminatory practices by offering services and products that serve people of color and others who have been excluded by the current economic system. In the Twin Cities they include Sunrise Banks, which bills itself as “the world’s most socially responsible bank.”

Sunrise Banks President and CEO David Reiling says his father started the bank with a focus on financially inclusive products to help build community and social good. Since its founding, Sunrise Banks has built a solid financial standing through partnerships and community relationships. Reflecting its mission, it now operates as a Community Development Financial Institution and member of the Global Alliance for Banking on Values. “We’ve taken these three desperate banks that hadn’t really done much and focused on their growth,” Reiling says. “We made sure they grew in a way that was very in concert with the needs of the community, which happened to be low-income communities of color and immigrants. It all launches from there.”

With a belief that homeownership should be an option for everyone, Sunrise Banks has shaped innovative loan programs to better serve immigrants and other people who may lack traditionally required documentation that also make good business sense, Reiling says. “We have to structure these loans appropriately so the customer is going to be successful, the bank is going to be successful, and the community is going to be successful. And I was really confident we could do that,” he says. “People in the office just had to believe a little bit; they needed to be allowed the courage and the confidence.”

It’s a mindset and a way of doing business that Reiling hopes will spread in the financial industry and the broader economy — to better serve a growing number of diverse customers and to build stronger communities. “The way we measured our success shifted from metrics to questions such as ‘How are your employees?’ ‘How are your broader stakeholders?’ ‘What are you doing on the environmental side?’ This mindset needs to shift within businesses everywhere, and banking needs a leader or two in this space.”

David Reiling: My father purchased a small community bank that was in trouble from a friend of his back in 1984. He already owned a real estate company, which was his actual area of expertise. He thought it would be interesting to put the deposits from his real estate company into his bank. He later purchased a second bank in a similar situation and then a third bank in 1995.

A brief background on me: I was a bank teller one summer and loved it so much that I decided I wanted to do that job one day.. Then I went to the University of San Diego, where I did a lot of volunteer work building low-income housing. I was always impressed by the gratitude of the people whose homes were being built. That’s when I first thought about whether I could make a living doing good. I thought about what I wanted my life’s work to be and how I would marry those two things together.

I started working for First Interstate Bank in Los Angeles, where a lot of great responsibility was given to me. Eventually, my dad called me in 1995 and told me he was thinking about buying a bank and wanted me to buy it with him.. We bought the bank together, and then I ended up buying him out and then eventually buying the majority share. Between my dad and I, we’ve taken these three desperate banks that hadn’t really done much and focused on their growth. We made sure they grew in a way that was very in concert with the needs of the community, which happened to be low-income communities of color and immigrants. It all launches from there.

Marquis: Tell me a little bit about the variety of community programs and partnerships Sunrise Banks has established to serve unbanked or underbanked people and help them pursue financial stability. How did you roll them out? I know there are regulatory limits on what you can do as a bank, so how were you able to work within those constraints and deliver products that are useful to the people you want to help?

Reiling: I realized the only way the bank was going to succeed was if the community succeeded. At the time, our bank’s community was mostly full of Hmong immigrants — refugees who fled to the U.S. in the late 1970s during the Vietnam War. I wondered how I would make this bank successful and thought the answer was quite simple: Hire Hmong employees, engage the community, and figure out what they need. They need accounts. They need capital. They need to figure out how to use the U.S. system to their benefit. To find success, you must look at what the problems are within a community and try to solve them to the best of your ability. Then try to partner in places where you can’t do everything .

A bank is limited in scope to certain types of lending. It’s in this facet that we’re innovating for the benefit of the community, but also for the benefit of the bank. And this little bank grew significantly, relatively speaking. It was a tiny bank to start, so in scale it wasn’t a dramatic change, but it grew to where it became more sustainable from a financial and a community standpoint.

One of the most difficult things about serving a community like this is whether the community thinks it can succeed. Sometimes you have to work at overcoming the psychological mindset of a community and let them know that your bank is a good place to invest, build businesses, buy homes, fix things up, and so forth. That’s why getting capital into people’s hands— and in the surrounding neighborhoods is critically important. That’s as opposed to the previous bank owners who were taking deposits from the community and loaning them out into the suburbs.

Our first benchmark in terms of how we would measure ourselves was the Community Reinvestment Act (CRA). I learned that only 11% of the banks throughout the country have an outstanding CRA rating. Wow, I thought: The majority of the banks are only going for satisfactory? For us, outstanding is the benchmark, and we have had an outstanding rating for more than 25 years. From the get-go, we wanted to be intentional about our community impact and integrate it into our business.

Next, we worked to become a Community Development Financial Institution (CDFI). We have been a CDFI for more than 20 years now. One of the thresholds to becoming CDFI certified is designating at least 60% of financing activities to low- and moderate-income communities. After that our intentions to remain outstanding kept rising, so we sought out B Corp Certification. We felt like this certification fit us best because it means we're serving a broad set of stakeholders like the environment and our employees — not just our shareholders.

Ultimately, a lot of our programs and products have grown organically. In particular, our Pathway2HomeSM program allows eligible borrowers to receive a home mortgage using their Individual Tax Identification Number (ITIN), which means a Social Security number is not required when using this program. When we opened a branch in a mainly Latinx community, we asked what their struggles were so we could learn what we needed to do to help them. . A lot of the folks I talked with do not have an SSN. So there was a window of opportunity to help this particular community build credit. I worked on initiatives from the state law standpoint that made sure they could get a driver’s license, even if they were undocumented. Same with auto insurance, not only for their benefit but for the benefit of everyone on the road.

One of the first products we created within the bank was our own ID. If you’re undocumented, you have to carry around your alternative documentation — consular, municipal. Unfortunately, these can wear down over time. We created our own plastic card and then gave them a bank ID card. That way we knew it was them every time they came into the bank, but they didn’t have to carry around their super-important documentation. We were ingraining our way into the community and understanding what their needs were. Then as we got deeper, we started to wonder what else we could do.

Another struggle we discovered was landlords who wouldn’t rent to this community because of their immigration status. So to be able to own a home would be monumental not just to build assets but to lay down roots for a family. I started to poke around the country to figure out who else does this. I ran into a gentleman who runs a bank in Miami. He was doing ITIN lending at the time. If you have a green card or are a citizen, then you get a Social Security number. But if you’re not documented, you get an ITIN. So this gentleman in Miami was doing ITIN mortgage loans. However, his immigrants were mainly Venezuelan. They would fly over in their private jet and go on to buy multimillion-dollar homes. So this was a totally different gig, but he taught me it was possible for someone to do this and make it work for the community and the bank.

Marquis: Are you able to sell those mortgages, or do you have to hold them on your books? How does that work?

Reiling: At the moment, we hold them on our books. We have about $50 million, and it’s growing quite well. We have proven the credit quality in the historical performance of this portfolio, but because there is no private mortgage market it still requires us to reserve a large compensation for private mortgage insurance. This means we have to charge a little bit more to make it worth it, but it’s a 30-year fixed-rate mortgage. The goal for both us and the borrower is to get their undocumented status changed to a permanent residence. Once they can do that, we can refinance their mortgage and sell it to the secondary market and get them better terms. The cool thing we usually see is that their home generally increases in value — their assets go up. They have real equity and they have a permanent residence. They are on a path to move forward and to build positive credit history.

Marquis: How do you get this kind of product authorization through your board? It seems like there could be some big risks involved with these programs.

Reiling: There are many factors that came into play, but one of the leading factors is me. I own the majority of the bank, I’m the chair of the board, and I can be a benevolent leader . So it wasn’t really a question of if, but rather a question of how. We have to structure these loans appropriately so the customer is going to be successful, the bank is going to be successful, and the community is going to be successful. And I was really confident we could do that. People in the office just had to believe a little bit; they needed to be allowed the courage and the confidence.

Once people start to see a new capability such as this, they are given the confidence to do more. We were then able to get more educational partners in place, and we continue to innovate so the product becomes better and better. The fact is that many of the risks people perceived were made up in their head.

Marquis: Your B Corp Certification is one of the ways in which you measure your impact. You were relatively early to becoming a B Corp in 2009 — there may have been 300 B Corps back then, maybe less. How did you get in on that train so early?

Reiling: It’s funny you say that because I considered myself late to the B Corp train. I had learned about B Corps in the early 2000s as we were growing our banks, so by 2009 I was ready to get it done. I saw B Corp as our future.

We were making great strides in terms of our governance models and the environment. We actually had the first two LEED-certified bank branches in Minnesota. As we went through our B Corp Certification, the way we measured our success shifted from metrics to questions that I mentioned earlier, “How are your employees?” “How are your broader stakeholders?” “What are you doing on the environmental side?” This mindset needs to shift within businesses everywhere, and banking needs a leader or two in this space. While we weren’t the first B Corp bank, we were among the first few in the beginning. Best of all, becoming a B Corp launched us into an entirely new and supportive community.

We also became a public benefit corporation back in 2015 when the state of Minnesota began to allow that legal structure. I believe this kind of solidified our B Corp Certification. What I like best about the B Corp movement is that it drives us to keep improving — to be the best. You can’t stand still. You have to keep driving forward to do better. It is such a positive way of being better as opposed to checking some box.

Marquis: In the past few years, the COVID-19 pandemic and the murder of George Floyd brought more calls for racial equity and promises of action from companies. How have the past few years reshaped your business?

Reiling: The murder of George Floyd took place right in our backyard — I live one mile from 38th and Chicago, where he was killed. The civil unrest that followed affected a good number of our customers and our community as a whole. It was so impactful and hurtful, but the amount of attention and resources that have come to the table since has been unbelievable. We are a part of so many different initiatives and have many amazing community connections who have been able to show us how best to distribute those resources where they're needed.

An example of this is an initiative being spearheaded by the McKnight Foundation in partnership with Sunrise and other local organizations , GroundBreak Coalition which will use business, philanthropic, and public capital to help rebuild the corridor hit by unrest after George Floyd’s death. The goal is to raise $2 billion. It is a huge initiative, and one that is focused on supporting the owners of those assets, primarily people of color.

We have doubled down on how we engage with our communities of color and getting more capital to the right people in the right places. Going back to the psychology of the community, the narrative needs to change from businesses won’t succeed her to this is a community where businesses can succeed. This is a community where people can buy homes and feel safe.

There is also the aspect of physical safety at some of our branch locations. It can take years to get this under control.We want everyone in those locations - employees, customers and those walking by - to feel safe. This is where our partnerships come in. By partnering with those in the communities and opening a dialogue, we can find a way to move forward and make sure everyone is safe.We saw this back in the ’80s in Minneapolis. And it’s hard to convince someone to buy a home when people are shooting guns in the neighborhood, right? So we have to get some of the fundamentals down, which means we need community resources, police resources, and city resources to invest in these communities in order to move forward. This once again means that people need access to capital and bank accounts. They need jobs; they need health care. I think the late entrepreneur Marion Kauffman said it best: The best social security program is a living-wage job with benefits.

Marquis: One more question. I’m curious how you would scale some of these ideas you’re talking about to larger companies. For example, I worked for JPMorgan Chase for a while in the early days after Jamie Dimon took over. They’re making like $1.4 billion a year on overdraft fees. Although this seems great for the shareholders, it’s counterproductive for people in society. How would you pitch your initiatives and programs to someone like Dimon?

Reiling: This will probably give away just how old I am, but Jamie Dimon and I used to work at Citibank together. You have to give Dimon some credit in that he is engaged with some of the minority depository institutions around the country. But with all those resources — the money and the technical capabilities — we could do some really cool stuff.

Banks such as JPMorgan Chase need to take on a leadership role in terms of climate change. And that is really difficult to sell to shareholders because people think in a very scarcity-minded space. However, the ability to attack climate change, from my lens, is an abundance of opportunity. There are so many ways for us to do better: carbon reduction, energy efficiency, and more. But you have to look in the mirror as if you were a shareholder. Yes, you’ll be inclined to admit, we’re going to make a little less money. But we’re going to do the right thing, and that’s going to feel good. As a mission-driven bank, we want to be a social engine for good, and we see our customers and community responding to that, and wanting to work with us because our values are aligned. It’s so much easier for me to have that type of conversation with myself and board members. Dimon’s leadership is necessary in a lot of spaces, but I think it could be more creative in terms of what’s possible — partnering with the right people who are down in the trenches doing it.