It was one tough choice in a year of tough choices, but she just couldn’t bear to do it.
Vera Sung couldn’t ask the staff to board up the main branch and headquarters of Abacus Federal Savings Bank, the Chinatown community bank her family owns. Many other businesses in New York City did board up during a chaotic 2020 summer.
The headquarters and main branch of Abacus Federal Savings Bank sits prominently on a busy stretch of The Bowery, across from a 44-story low-income co-op apartment building in the heart of Chinatown. As an essential business, the branch stayed open through the pandemic and all of the chaos, with customers often lined up around the corner to make deposits, loan payments, or withdrawals. Cash is still king in Chinatown, where a third of businesses are still cash-only and it’s not uncommon for businesses to pay workers in cash.
They came as close as buying the materials, but boarding up just wasn’t a good look.
“I couldn’t fathom it,” says Sung, who is not technically an employee of the bank herself but sits on its board of directors. “I figured if something would happen we just saved the wood and all the materials just in case.”
The main branch made it through the year unscathed, as did all six branches of Abacus Federal Savings Bank — unless you count the fact that a dispute with the landlord over a rent increase at their Brooklyn branch forced them to relocate five blocks away during the pandemic. That branch had been at the first location since 1993.
“We found a new space on a corner, which is actually nicer,” Sung says. “It was never in our thoughts to not have a branch on Eighth Avenue. That’s where our community is and that’s where they need to go to bank.”
Over the past year, Abacus customers have weathered not only the pandemic — which started earlier in Chinatown due to xenophobia and loss of foot traffic — but also fear of the rising wave of violent attacks against people of Asian descent in the U.S.
In Chinatown and other Chinese immigrant neighborhoods across New York City, businesses that have barely survived their toughest year yet are now opening later in the day or closing earlier just so that workers feel safer commuting. And Chinatown has always been a larger draw, with people living all over the region coming every weekend to go out to eat or shop — weekly visitors now concerned about violent attacks against Asian Americans.
“In some ways it almost feels like the [anti-Asian] violence is surpassing the pandemic [in terms of anxiety] because of the vaccines coming out,” says Jill Sung, Vera’s younger sister and CEO of the bank. “It’s going to be a setback in terms of revitalization.”
But it’s hardly the first crisis that Abacus Federal Savings Bank has faced. The story of Abacus Federal Savings Bank is but one example of the persistence of all marginalized communities, including the Asian immigrant community, to invest in themselves in the face of structural and too often physical violence — and how that persistence has manifested and evolved over time.
Back in 1982, Chinatown was starting to feel its growing strength. It was more than 100 years since the Chinese Exclusion Act put severe limits on Chinese immigration. The act was technically repealed in 1943, but strict quotas on Chinese immigrants didn’t go away till 1965, and that’s when Chinatown started to grow again. Many who landed in the neighborhood went to work in small-scale garment shops. By the spring of 1982, 20,000 garment workers, nearly all of them Chinese-American women, marched down Chinatown’s Mott Street to Columbus Park and held a rally to demand that garment factories renew the contracts with their union.
That same year, Thomas Sung took a different walk, to the offices of the Federal Home Loan Bank of New York. Back in those days it was in the Twin Towers, not far from Chinatown. He went to ask about obtaining a charter for a new savings and loan association.
As he told the Federal Home Loan Bank staff, the clients he had helped over the previous 20 years in his Chinatown law practice, with immigration issues and filing documents to incorporate their businesses, now needed loans to buy homes. But while there were plenty of banks in Chinatown and plenty of deposits from Chinese-American businesses and workers in those banks, no one was interested in lending to Chinese immigrants and other Asian Americans.
So they handed him a thick application packet.
“Being a lawyer, completing forms was not a problem for me,” Sung says. “They were very friendly people, I remember.”
Sung was, in fact, following in the footsteps of marginalized communities all over the country. The Black community in Los Angeles organized Liberty Savings & Loan Association in 1924 — a decade before the racially discriminatory practice of redlining was enshrined in federal policy under the Home Owners’ Loan Corporation. Harlem’s Carver Federal Savings Bank got its federal charter in 1948. Houston’s historically-black Third Ward formed Standard Savings Association in 1958.
Federal savings and loan association charters were sometimes the only option for Black or immigrant communities to obtain a bank charter, as state banking agencies weren’t always willing to grant bank charters to those communities.
As argued in author Mehrsa Baradaran’s “The Color of Money: A History of Black Banks and the Racial Wealth Gap,” banks founded by marginalized communities aren’t a panacea to overcome systemic racism and close racial wealth gaps, but they do offer an important refuge from exploitation.
They also innovate, finding new ways to serve their communities’ specific needs. In Abacus’s case, the bank collaborated with Fannie Mae to recognize sources of income more common amongst Asian-American households — a change that is now enshrined in HomeReady, Fannie Mae’s product for low-income homebuyers.
Sung received conditional approval in 1982 to form a savings bank, giving him two years to raise the necessary startup capital, recruit a management team, and find a location. He raised $2 million, mostly from his own savings and from his father — a successful businessperson in his own right — and a small amount from a handful of business owners in Chinatown. The bank opened for business in 1984.
Unfortunately this once-reliable route for marginalized communities to charter their own banks is no longer an option. After multiple financial crises over the last three decades, there is no longer a federal chartering agency that specializes in small banks as the Federal Home Loan Bank system once did.
The Dodd-Frank Act of 2010, passed in response to the subprime mortgage crisis, put the Office of the Comptroller of the Currency in charge of savings and loan associations. Until that point, the OCC mainly regulated the nation’s largest banks. So today some of the country’s smallest banks — the remaining savings and loan associations like Abacus — share the same regulator as the largest banks in the land, like JPMorgan Chase, Bank of America, and Wells Fargo. It wasn’t clear at first how effective the OCC would be at regulating smaller institutions, which have different business models than larger banks. One thing is clear — during the decade after being put in charge of federal bank charters, the OCC granted hardly any charters at all until the past two years.
“It’s been a process of educating OCC about us,” says Jill Sung. “Now over the years, because of advocacy, they have more of an understanding of us, and I don’t know whether it’s political or not but it seems like they don’t want to have that image of being against small banks.”
Abacus survived these crises by avoiding speculation, staying focused on making home mortgages to Chinese and other Asian immigrant borrowers. There were always more and more arriving. People of Asian descent have been among the fastest growing populations in NYC, doubling as a share of the population from 1990-2010, according to the NYU Furman Center. They now number more than a million in the city, with concentrations in Brooklyn’s Sunset Park and Flushing in Queens, where Abacus has branches.
Even today, the bank is primarily a home mortgage lender, and for years it sold most of its home mortgages to Fannie Mae. Like most small banks, it’s difficult for Abacus to hold a lot of 20- or 30-year loans on their books. Selling loans to Fannie Mae means the bank gets the money back sooner so it can keep making more loans.
Fannie Mae doesn’t just buy any loan. The agency needs to see sufficient documentation to feel comfortable that borrowers will pay back the money they owe. Since the advent of modern credit scores in 1989, credit scores became a staple of Fannie Mae lending.
But credit scores weren’t always available for Abacus’s largely immigrant borrowers, who often don’t have sufficient credit histories in the traditional sense. So Abacus — as well as other minority-depository institutions across the country — pushed Fannie Mae to recognize non-traditional documentation like rental payment receipts or utility bills to document a borrower’s credit history.
Another common situation in Chinese and other Asian immigrant communities are boarders — renters living in extra bedrooms on an informal basis, with no lease, and rents paid monthly in cash. In 2002, Fannie Mae started accepting boarder income, with sufficient documentation of each boarder’s shared living and rental payment history with the borrower.
Today homebuyers can use boarder income as proof of ability to repay a loan through Fannie Mae’s HomeReady program. It’s unclear how many people have taken advantage of this program, and how many used boarder income to obtain their loan. Overall, the company bought 93,909 mortgages issued to very-low-income borrowers in 2020.
Going back as far as it could in its records by press time, Abacus says it has made 12,000 loans since 1996, totaling more than $3 billion — mostly home mortgages, and many thousands of those loans sold to Fannie Mae. The bank’s loan default rates have never went above 0.6 percent, even through the subprime crisis. In non-crisis conditions, banks typically have default rates between 2-3 percent.
In fact, Abacus was in such a good position through the subprime crisis years, it went from 269 mortgages made for owner-occupied single-family homes in New York in 2007 to 1,250 mortgages in 2009, according to federal data collected under the Home Mortgage Disclosure Act. And nearly every single one of those mortgages went to Asian borrowers.
The creative underwriting procedures at Abacus were put on trial, literally, in 2012, when Manhattan District Attorney Cyrus Vance made Abacus Federal Savings Bank the only bank ever indicted on criminal charges following the subprime mortgage crisis.
There was one mortgage officer at Abacus who had submitted fraudulent documents and stolen money from clients. The bank leadership found out about it, fired him immediately and reported the fraudulent activity to Fannie Mae. It just so happened to all take place in the aftermath of the subprime crisis, giving the district attorney an opportunity to make an example of the bank — even though the bank’s lending track record was exemplary.
As captured in the Oscar-nominated documentary, “Abacus: Small Enough to Jail,” the jury ultimately found the bank not guilty on all 184 charges.
“An FDIC regulator came to one of the screenings, and he was very excited,” says Jill Sung. “He told me he’d never seen in his whole life a whole audience actually rooting for a bank.”
Despite its victory against the prosecution, the bank had to stop lending for a brief period after the indictment and its reputation took a hit. For the first time since its early days, it went in the red. Jill Sung says it took about two years to get the bank back in the black. But the bank had to figure out how to do that in a post-subprime crisis world, with new loan products to fit a stricter regulatory environment.
Banks have to seek regulatory approval for new loan products. Jill Sung led the bank successfully through a new product review process in the years after their victory in court. Instead of selling most of its loans to Fannie Mae, the bank wanted to start keeping more loans on its books, but still using non-traditional verification of employment and income for the borrower and other unique parameters based on the bank’s deep knowledge of its community. It involved a lot of back-and-forth with the OCC, and Sung even had to submit a paper, with footnotes referencing other research data to back up the bank’s assertion that the new loan parameters it wanted to use would not result in a wave of bad loans.
“It felt like I was back in my college days,” says Sung.
Sometimes new products are forced upon banks. Last year, when the Paycheck Protection Program rolled out, Abacus was as stunned, as many of its borrowers were, to see the first wave of PPP loans going mostly to wealthier or larger businesses that didn’t necessarily need the help. Coming out of the savings and loan association tradition, Abacus has never been a big small business lender, though many of its borrowers do take out loans against their homes to start or grow a business.
But once its staff figured out the rules, Abacus started making PPP loans to small business owners who were left behind by the bigger banks where they held deposits. So far, the bank has made 192 PPP loans, at an average loan size of $27,000, with some loans as little as $2,100.
“Our PPP loans were all local businesses,” says Vera Sung. “Dentists, grocery stores, the people who are part of this community and make this community what it is.”
Thomas Sung, who had already had a successful career as a practicing lawyer by the time he got the bank charter, never intended to get rich off the banking business, so taking bigger risks for the sake of profit has never been part of the bank’s model. He never took a salary while he led the bank as CEO until 2005, when daughter Jill took over.
Abacus has never even paid out a dividend to shareholders, retaining its after-tax profits instead to satisfy its regulatory requirements. Regulators require banks to maintain $1 in capital for every $11 it has in loans or other investments. Many banks sell shares to additional private investors or choose to go public on the stock market in order to raise capital for growth.
“Once you go public then your objective operating the bank has to change because the shareholders are looking for the bank to be profitable for dividends,” says Thomas Sung, who remains chair of the bank’s board. “And since we opened the bank with the purpose primarily not to benefit financially from the bank, I could not reconcile with that purpose, so we never sold our shares to the public.”
Abacus still has only the original $2 million in startup capital invested in the bank, plus around $46 million in retained earnings.
The Sung family could earn a cash windfall if they chose to sell to another bank. Also founded in 1984, Chinatown Federal Savings Bank was the only other community bank based in Chinatown. Despite being less than half the size of Abacus, Chinatown Federal Savings sold in 2018 for $28.8 million to Hanover Bank, a community bank based in Long Island.
The Sungs say they have turned down many offers to sell the bank over the years. No buyer has ever convinced the family that they would be just as committed to the community.
“We’re very married to our purpose, which is to serve the community, and that’s always been passed down to us from our father,” says Vera Sung. “I’ve heard our father say that as long as the community needs us, we will be here, and when the community doesn’t need us then it’s fine and we don’t need to be here any more in that sense.”
Update: We’ve clarified what documentation Fannie Mae requires from a borrower using boarder income.
This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter. The Bottom Line is made possible with support from Citi.
Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.