Bank Redlining Increasing and Wealth Plummeting in Minority Communities

Seattle 1964

Seattle 1964

New Orleans        The Federal Reserve report on the continued decrease in lending to African-American and Hispanic families is unambiguous.  In 2013, 4.8% of total home loans were to African-Americans, 7.3% were to Hispanics.  In 2012, the numbers were only marginally better at 5.1% and 7.2% respectively.  As recently as 2006, before the real estate meltdown the numbers were almost 50% higher when combined, exceeding 20% of the total loans.

The other thing that is clear in the total failure of the Obama Administration to provide any real relief to so many homeowners is that citizen wealth for these same families has plummeted, putting more families underwater, owing more than the value of the loans in black and brown communities. While home values have declined about 10% in white communities, values have dropped by 20% in predominantly African-American neighborhoods and 26% in Hispanic-majority communities. It is virtually impossible not to conclude that banks are neither loaning, nor are they providing relief in such communities. If that’s not redlining, then let’s come up with a new name for it, because whether you say tomATo and I say toMAto, it’s all the same thing.

Reading the Wall Street Journal on this issue the only other thing that is crystal clear is that everyone responsible wants to point the finger somewhere else, usually at the government, rather than their own behavior, and muddy the water as much as possible, rather than moving to fix the problem with more rational policies and programs. The banks want to claim that they are raising credit scores higher than required because they don’t want to pay billions of penalties for their criminal behavior in robbing and fleecing both rich and poor. Does that sound like taking responsibility for your crimes and endeavoring to do better? Hardly!

And, how can blaming the lack of lending or relief to minority neighborhoods on these homeowners when every indication is that the roots of the securitization scandals were deeply set in speculation and largely white, middle-income and suburban communities? Count on the head of the Mortgage Bankers’ Association to voice the racism inherent in these new, whitewashed policies. David Stevens, their CEO, says the hammering of minority communities is “just simple math…tightening the credit has an unusually high impact on minority borrowers.” Stevens and the MBA are the lobbyists for bankers and banking in Washington, DC, so this is scary. They seem not to have gotten the memo that underlies the Federal Reserve report required by the Community Reinvestment Act and Home Mortgage Disclosure Act, which is the fact that they are supposed to be proving that they are doing better and doing everything possible to increase lending in minority areas, not just show up, and sign the attendance list.

Home ownership for lack of any better plan in place is still the largest source of wealth for lower income and minority communities so this level of inaction, blame shifting, and rationalizing puts the heavy fist of bankers on the scale to further increase the shift of inequality between the rich and poor, towards the rich. The underlying racism insures that lower income, minority communities by damn stay that way.

It’s not simple math. It’s simple racism, and that’s what the Federal Reserve is supposed to be stopping, not enabling, and it’s what these reports are supposed to be exposing for action, not simply noting in passing.

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Wholesale Bank Retreat from Lending to Lower Income and Minority Borrowers

cra1New Orleans      The Community Reinvestment Act (CRA) passed in 1978, more than 35 years ago, was straightforward. Banks could no longer redline, meaning they could not use the deposits from lower income and minority neighborhoods to finance mansions for the rich in the sprawling suburbs. More plainly stated, they could not discriminate in their lending. As importantly, under the Home Mortgage Disclosure Act (HMDA), they couldn’t hide their lending records, but had to make them transparent enough for regulators and the rest of us to know that they were doing right. Fair enough, and this worked not perfectly, but pretty well, for almost 30 years until the Great Recession by meeting the huge demands in our communities for homeownership.

Without being willing to come right out and say so, banks have gone to war against the CRA and lending to low-and-moderate income and minority communities without formally revealing that they have agreed to a declaration. They don’t want to say they don’t want to loan anymore to lower income working families and minorities, but they just don’t want to do so.

The war is being led by the biggest of the banks, especially JP Morgan and Bank of America. JP Morgan’s Jamie Dimon, indicated that the bank has reduced its exposure in the market for FHA insured loans that are targeted to first-time homeowners with “little wealth, especially minorities, because it allows borrowers to make down payments of just 3.5%.” A year ago Morgan accounted for 12.7% of these loans, but most recently it revealed that its share is down to 2.3%, which is to say, knocking on the door to doing nothing. Bank of America has also retreated, claiming it will focus primarily on servicing his existing customers with accounts at the bank.

And, what is their rationale for the retreat? Well, this is interesting, because it goes to the issue of transparency and accountability for lending, which was at the heart of HMDA as well.  First and foremost is the fact that they don’t want to hold the loans on their books. For right now this is why 80% of their loans are pushed into programs with various federal guarantees. A new accounting rule proposed for 2018 could make this even dicier, because they will be required to write off a portion of the loan at the same time they are making the loan, which you just know will scare the heck of them. Here’s the rub. Dimon is whining because his bank and a pack of the others are now paying fines, $614 million for Chase, because they defrauded FHA by claiming that some loans they packaged met the FHA requirements that didn’t, and even after an internal audit discovered this, they tried to continue the cover-up and not inform the FHA that they had swindled them until an internal whistleblower spilled the beans.

So, let’s all understand, Morgan got caught cheating the government, so now the big whine from CEO Dimon is that they lost money on the scam, because they are having to pay a penalty for doing wrong. They essentially want some kind of do-over rule that allows them to cheat, say I’m sorry without a fine, and keep doing whatever they feel like doing.

And, one thing Morgan, Bank of America, and others don’t feel like doing anymore is lending to first timers, working families, and minorities it seems. Unfortunately the way the CRA has had its teeth pulled over the years makes this possible, along with the fact that the Federal Reserve is the police watching over the banks and their CRA obligations, and they have tended to play patty cake on these lending obligations for years.

We need to look at the coming CRA numbers more and more rigorously, because whether we know it or not, we’re in a fight to keep money in our communities, and we’ve got a huge body count already and no sign of any cavalry coming to save us.

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