Omni National Bank's Community Redevelopment Strategy Falls Flat Amid Real Estate Market Collapse

Strategic Insights -

As one of the eight Georgia banks to fail in the past year, Atlanta-based Omni National Bank's community redevelopment strategy was touted as a refreshing alternative to traditional real estate lending. By targeting low-income urban neighborhoods with community redevelopment loans, the bank sought to revitalize these areas through property fix-ups and sales. However, the strategy ultimately unraveled when the housing bubble burst, leaving Omni saddled with $114 million in nonperforming loans.

Key Takeaways:

  • Omni National Bank quadrupled its community redevelopment program between 2004 and 2007, reaching $182 million, or over a quarter of its total loan portfolio.
  • The bank's strategy involved lending to investors who planned to buy, repair, and sell run-down homes in low-income urban neighborhoods, with over half of the loans originating in Atlanta.
  • Omni foreclosed on hundreds of homes after the subprime mortgage crisis hit, making it difficult for builders to sell homes and repay their debt.
  • The bank chose to turn foreclosed homes into rental properties, a step that was seen as more responsible than allowing them to deteriorate.
  • Banks are required to serve low- and moderate-income neighborhoods under a federal law, but proponents of such lending argue it is too risky.
  • Omni's commitment to serving low-income neighborhoods was highlighted by industry experts, who noted that the bank's collapse would be felt particularly hard in these areas.

Statistics:

  • $182 million: The size of Omni's community redevelopment program between 2004 and 2007.
  • $114 million: The amount of nonperforming loans Omni was saddled with after the housing market collapsed.
  • 2004-2007: The time period during which Omni quadrupled its community redevelopment program.
  • 250,000: The approximate number of homes in the Atlanta metropolitan area that have gone into some stage of foreclosure.
  • 15-20,000: The estimate of homes in the Atlanta metropolitan area that are currently boarded up.

Sources:

  • PAUL DONSKY, "Omni Bank Failure Raises Questions About Community Redevelopment Lending", April 24, 2009.
  • Walt Moeling, Atlanta attorney and former representative of Omni National Bank.
  • John O'Callaghan, president of the Atlanta Neighborhood Development Partnership.
  • John Kline, banking consultant in Decatur.
  • Chris Marinac, banking analyst at FIG Partners in Atlanta.
  • Mark Kanaly, banking lawyer at Alston & Bird in Atlanta.