While many lenders were rushing headlong into the subprime mortgage market and making money hand-over-fist the last several years, East West Bancorp Inc. sat on the sidelines and stuck with a conservative mortgage portfolio.

Now, with the subprime market in the midst of a meltdown, the tables have turned, and the Pasadena bank and others like it are sitting pretty.

In its 33-year history, East West has never made a subprime or an interest-only loan and has been sparing in its approval of all but the most basic adjustable-rate loans. Most of its loans require the traditional down payment of 20 percent or higher. As a result, East West’s portfolio has a loan-to-value ratio of 60 percent versus 90 percent or higher at many subprime lenders.

But even with this no-nonsense approach, East West managed to grow its mortgage loan portfolio 16 percent in 2006 to $411 million, while at the same time reaping increased revenues and profits.

And while East West stock has dropped 6 percent in recent weeks in line with the broader market that’s nowhere near the wipeout experienced by financial institutions that plunged into the subprime market. Santa Monica-based Fremont General Corp., a leading subprime lender, saw its stock plummet 60 percent in the first 10 weeks of the year; the stock remains volatile.

All this is vindication to Dominic Ng, East West’s chairman and chief executive, who has steadfastly resisted the call of higher profits from subprime, Alt-A and other risky loan products.

“The subprime business is just a horrible business. Four or five years ago, everybody should have known this will happen,” Ng said of the sector’s collapse. “We knew all along that going into subprime would work only temporarily for profit. It’s not a long-term sustainable business prospect and does not fit into our business model. We prefer consistent long-term core earnings.”

But to Ng, eschewing the subprime or Alt-A market is more than just good business sense; morality is at play. “Anybody who can make money by potentially hurting people over the long run that’s bad for the customer and hurts society. We don’t feel comfortable about pushing people to be highly leveraged,” he said.

Ng also brushes aside the counterargument put forward by subprime lenders: that making subprime loans has enabled hundreds of thousands of Americans to own homes who otherwise couldn’t have. “To me, the American dream of home ownership sounds great. But the American nightmare of getting in over your head is much more awful. It’s something I wouldn’t wish on anybody,” he said.

Cautious banks

East West’s attitude is not unusual for a small- or mid-sized federally chartered bank, which are under tighter regulatory scrutiny than mortgage loan outfits, said Wade Francis, president of Long Beach-based Unicon Financial Services, a banking consulting firm.

“It’s a typical response that you see at many banks,” said Francis said. “The moment a federal regulator sees questionable loans being made, they tell the bank to stop making those loans.”

In addition, larger banks, such as Wells Fargo & Co., have such huge loan portfolios and deposits on hand that they can afford to make some subprime loans and not take a huge hit if that market heads south, as it has in recent weeks. A bank of East West’s size, though, has less flexibility to handle such ventures.

East-West’s approach to mortgage loans also can in part be traced to the Chinese ethic of saving money. The savings rate in China is upwards of 30 percent of income, as opposed to the penchant of Americans to spend virtually all their income, Ng noted.

Also, banks serving the Chinese immigrant community here have long had the practice of requiring substantial down payments from borrowers, something that East West did even in its days as a savings and loan.

“A large down payment is crucial, especially for a recent immigrant who has not been in this country long enough to establish a reliable credit record,” Ng said. “A substantial down payment say over 30 percent mitigates the risk. It means that if things turn upside-down, you have room to maneuver because you’re not leveraged in excess of the asset value.”

Indeed, it is the threat of borrowers owing more than their property is worth as home prices have flattened or drifted downward that has spooked the investment community in recent weeks. That’s a recipe for increased delinquencies and foreclosures, which is exactly what happened during the fourth quarter of 2006.

“If you’ve only put 2 percent down or even nothing down, you’re more likely to just walk away from a loan when things go bad,” Ng said. “If you put 30 percent down, you’re not going to walk away. That’s why in all our years, we’ve never had one loan foreclosure from a first-generation immigrant.”

While taking this tough line on loans, East West has not shied away from reaching out to the immigrant community. Ng said the bank has made a concerted effort to court this large market, to help immigrants establish a banking relationship. For consumers, that often means making smaller loans, such as car loans, to help them establish a credit record. Then it becomes that much easier to qualify for a home loan.

As for the bank itself, the greatest threat now is from a general economic slowdown or the spread of a liquidity crisis, something Angelo Mozilo, Countrywide Financial Corp. chairman and chief executive, evoked earlier this month. Yet even here, Ng said the bank is not as exposed as other financial institutions.

“We don’t get loan funds from borrowing as many other lenders do,” he said. “We fund our loans through our core deposit base. As long as that remains healthy, we’ll do fine.”