TARP Supported Banks Blamed for Lack of Lending in Multi-Racial Communities

May 13, 2010
TARP-Supported Banks Reduced Lending Dramatically, New Data Show National report finds re-emerging redlining patterns in seven cities as banks pull out of prime mortgage lending in communities of color May 13, 2010

CHICAGO-A report released today by a multi-state collaboration of regional research, policy and advocacy organizations documents the dramatic decrease in low-cost home loans made between 2006 and 2008, and highlights that communities of color were hardest hit by the drop-off in lending.

The entire release is available below after Otto's comments.
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Otto's comments:
The numbers most of these affordable housing advocates use( BTW-they are referred to as researchers in the press release) are the HMDA (Home Mortgage Disclosure Act) numbers. However, the findings they came up with are basically unreal.



Banks do not abandon neighborhoods of color. CRA (the Community Reinvestment Act of 1977) sees that banks serve each neighborhood's credit needs equally and in a colorblind fashion. What is taking place in these neighborhoods is a result of our current economy. In neighborhoods where home values have dropped and unemployment has increased, it is difficult to refinance loans. Many neighborhoods of color had the value of the homes artificially increased due to the "go go" real estate environment we had from 2003 thru 2007. If a neighborhood had a high turn over in home sales, many homes are now valued less than the mortgage they carry. Thus making it impossible to refi.



Also, there are fewer loan options as sub prime lending has basically gone away. Let's keep in mind that many loans in these neighborhoods were sub prime loans where lenders were willing to accept alternative forms of credit and income verification. These alternatives are no longer viable. New regulations and supervisory oversight have eliminated them. Lenders have learned a hard lesson and will not make subprime loans any longer. Lenders must fully underwrite loans. There are no more stated income or "Liar" loans. Loan to value ratios for purchases and refi's has dropped to 80%. Mortgage insurers are pulling out of entire states. All of these factors make it more difficult for anyone, much less a person of color, to refinance their home.



Overall, the bar for borrowers has been raised pretty dramatically. In 2006, a borrower needed a 680 Fico Credit Score to access a prime home loan. As of 2008 and 2009, due to the increases in foreclosures and consumer defaults, most banks raised the bar to a 740 Fico. This locked out many of the borrowers who had previously been able to access loans.



This report fails to mention the significant drop in lending in all neighborhoods. Refinance lending has dropped ridiculously since 2006. That drop is across the board and for all neighborhoods, not just those of color. Home purchases are up, refi's are nearly non existent.



Let's consider who commissioned the report. The organizations listed at the end of the report are not exactly known for being "bank friendly." These organizations have a partisan and adversarial realtionship with banks and have every reason to manipulate certain information to make banks look bad. If these orgs deemed all banks to be fair lenders and each bank provided loans on an even colorblind basis, they would jeopardize their government and foundation funding and cease to exist. I could more easily accept this report if it came from an org that was well known for its evenhanded treatment of banks.



It wasn't that the TARP funded banks reduced lending. It was a function of our economy. There were simply fewer good loans to go after.
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Here is the full text of the press release:

TARP-Supported Banks Reduced Lending Dramatically, New Data Show National report finds re-emerging redlining patterns in seven cities as banks pull out of prime mortgage lending in communities of color May 13, 2010

CHICAGO-A report released today by a multi-state collaboration of regional research, policy and advocacy organizations documents the dramatic decrease in low-cost home loans made between 2006 and 2008, and highlights that communities of color were hardest hit by the drop-off in lending.

Read the report: http://bit.ly/p4ymre

The report, Paying More for the American Dream IV, examines the mortgage lending patterns of banks, including the nation's four largest financial institutions, in seven metropolitan areas in the United States: Boston, Charlotte, Chicago, Cleveland, Los Angeles, New York City, and Rochester, NY.

"After inflicting harm on neighborhoods of color through years of problematic subprime and option ARM loans, banks are now pulling back at a time when communities are most in need of responsible loans and investment," said Geoff Smith, Senior Vice President of Woodstock Institute. "We are concerned that we have gone from a period of reverse redlining to a period of re-redlining."

Key findings include:

* Prime mortgage lending in communities of color declined more than twice as much as it did in predominantly white communities. While prime lending decreased between 2006 and 2008 in all seven metropolitan areas, the decline in lending was much greater in neighborhoods where people of color comprised 80% or more of the residents. Neighborhoods of color experienced a 60.3% decrease in lending, compared to a 28.4% decrease in lending in white neighborhoods, where people of color comprised less than 10% of the residents.

* The drop in prime lending for neighborhoods of color was even steeper for refinance loans that allow borrowers to take advantage of lower interest rates or access home equity. Such lending declined by 66.4% in neighborhoods of color, but declined by a mere 13.9% in white neighborhoods.

* Between 2006 and 2008 the share of prime refinance loans made in communities of color dropped 35% whereas the share of these loans made in predominantly white communities increased 11%.

* The nation's four largest banks-Bank of America, Citibank, JPMorgan Chase and Wells Fargo-demonstrated similar lending patterns, targeting white communities for new refinance loans while pulling out of neighborhoods of color. Prime refinance lending by these four banks in white communities increased by 32.2% between 2006 and 2008, but decreased in neighborhoods of color by 33.1%.

"It is troubling that banks that took TARP funds made significantly fewer loans in the very neighborhoods most in need of credit," said Barbara van Kerkhove, Researcher/Policy Analyst at Empire Justice Center. "Part of the rationale for giving taxpayer funds to the banks was so they would lend and invest in our neighborhoods."

Recommendations include:

* Expanding and modernizing the Community Reinvestment Act (CRA) so financial institutions cannot evade its goal of increasing lending, investment and services in low- and moderate-income neighborhoods, consistent with safety and soundness.

* Creating a strong Consumer Financial Protection Agency (CFPA) to protect families and communities from abusive financial products and to prevent a future crisis from further destabilizing already struggling families and their communities.

* Updating the Home Mortgage Disclosure Act (HMDA) to include additional data necessary to keep pace with changes in the financial services industry and to achieve its stated goal of helping to identify discrimination in lending.

* Prioritizing fair lending enforcement in lending and loan modification programs to ensure that historically redlined neighborhoods are not subjected to continuing redlining practices.

* Repairing neighborhoods hard hit by foreclosure by working to keep families in their homes, mitigating the harmful effects of foreclosure, and significantly increasing investment in neighborhoods so that residents, small businesses and community institutions can thrive.

Collaboration:

The Paying More for the American Dream series is a collaborative effort of the California Reinvestment Coalition, Community Reinvestment Association of North Carolina, Empire Justice Center, Massachusetts Affordable Housing Alliance, Neighborhood Economic Development Advocacy Project, Ohio Fair Lending Coalition, and Woodstock Institute. This is the collaboration's fourth annual report examining systematic inequalities in the housing finance system and their impact on lower-income neighborhoods and communities of color. The first report, released in March 2007, examined disparities in mortgage pricing by several of the country's largest mortgage lenders that offered both prime and subprime loans. The second report, released in March 2008, looked at the geographic lending patterns of a set of defunct subprime lenders whose loans largely fueled the wave of foreclosures that is currently devastating communities across the country and found that these loans were highly concentrated in communities of color and lower-income communities. The third report, released in April 2009, analyzed and compared the lending patterns of lenders that were covered by the Community Reinvestment Act with lenders that were not covered by the CRA.

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For more information or to arrange interviews, please contact one of the following collaborative organizations:

Charles Bromley, Ohio Fair Lending Coalition
(216) 410-3879

Tom Callahan, Massachusetts Affordable Housing Alliance
(617) 822-9100

Alexis Iwanisziw, Neighborhood Economic Development Advocacy Project
(212) 680-5100

Tram Nguyen or Kevin Stein, California Reinvestment Coalition
(415) 864-3980

Adam Rust, Community Reinvestment Association of North Carolina
(919) 667-1557 x31

Geoff Smith, Woodstock Institute
(312) 368-0310

Barbara van Kerkhove, Empire Justice Center
(585) 295-5815


Katie Buitrago | Policy and Communications Associate Woodstock Institute
29 E Madison Suite 1710 | Chicago, Illinois 60602 T 312/368-0310 x2031 | F 312/368-0316 www.woodstockinst.org | kbuitrago@woodstockinst.org

Advancing Economic Security and Community Prosperity

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It seems our government’s thought police are on high alert but Homeland security is asleep at the switch. Last year, Napolitano said the greater threat to us is not from Muslim extremists but from returning military troops forming militias. Let’s see, Jihad Jane, Nidal Hasan, and Najibullah Zazi…..and now to include our new buddy Faisal—The score is Taliban 4 Militia 1 (and that 1 is questionable. Those Hutaree guys sounded like a bunch of idiots, not trained militants. BTW- I don’t know if you have been following it but, the government’s case in the Hutaree deal is a bit shaky. They may have moved too soon.)