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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FACE to Face is Reducing Foreclosures in Hawaii

FACE community meeting

New Orleans   Given how little of any significance has been done on any governmental or financial level to stem the tide of foreclosures in the USA, I read with interest a blurb in an on-line Shelterforce alert about progress in Hawaii.  It seems the Gameliel affiliate, FACE (Faith Action for Community Equity), directed by our old friend and colleague, Drew Astolfi, had put the pieces together in the state legislature and the results are indicating that they have made a huge difference.

Looking at the fact that Hawaii had risen to 9th highest among foreclosure states, Astolfi and his team, initiated a statewide survey and recognized the mainland trend that much of the foreclosure activity was being driven by the big banks (Citi, Wells, etc) and their servicers in fact were responsible for more than 97% from their numbers.  They came to the common sense conclusion that the local banks that had to meet directly with the mortgage victims were delaying foreclosures while the big banks, often lacking loan offices in the island, were simply pulling the trigger.   One thing led to another, as these campaigns develop, and working with allies in the state legislature, FACE was instrumental in getting a bill passed that offered some relief.

The bill passed in March 2011, almost 18 months ago, required some simple steps that turned out to make a difference and a huge one at that:

The new law, called Act 48, gave owner-occupants of residential property in non-judicial foreclosure the ability to meet face-to-face with their lenders to modify their loans or work out a payment plan within three months. Banks were barred from carrying out non-judicial foreclosures without the face-to-face sit-down, and any previous foreclosure proceedings were frozen during the three-month process.

Foreclosures in Hawaii dropped by more than half from May 2011 to January 2012. “Personal bankruptcy rates plummeted, and the Council of State Governments recommended that every other state adopt a similar law,” says Rep. Herkes.

As encouraging as this is, it is depressing to find – 18 months later – that other state governments and even the federal government did not jump on this idea and implement it.

The insight of the campaign and the legislation is the power of “community” even in banking, when finance is forced to confront families.  When communities have the same voice and can be heard as clearly as Wall Street, then as Hawaii has now proven, foreclosures can actually be modified and reduced.

FACE to face has worked in Hawaii, so why not force face-to-face in finance in the mainland?

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Elizabeth Warren’s Two-Income Trap

NElizabeth-Warren-Sheriffew Orleans With the passage of Dodd-Frank and the advent of the coming Consumer Protection Finance Agency there was a huge hubbub from business and others opposing the appointment of Harvard Law Professor and bankruptcy expert Elizabeth Warren to run the agency.  Supposedly she was opposed by Treasury Secretary Timothy Geithner, the bank bailout Wall Street buddy-boy, which made me like her in a kneejerk sort of way:  anyone who was his enemy was surely my friend!  She had a hardscrabble personal story that started in red dirt Oklahoma with a father pushed over the financial edge, and knowing that country also biased me towards her, even though her being at Harvard stuck in my craw.  All of that is over now.  I read the book she wrote with her daughter, Amelia Tyagi, called The Two-Income Trap:  Why Middle-Class Mothers & Fathers are Going Broke, and now I’ve gotten my head together on the true facts and her core arguments, and I totally get it.  Count me as a fan!

I also get why so many were lined up against her:  first, she’s an equal-opportunity offender zinging left, right and in-between on the issues whether banks or unions, and, secondly, she’s an iconoclastic feminist arguing a totally womanist line with women and children in front, but questioning the normally unchallenged assumptions about women in the workplace.  That’s a deadly set of variables for any political calculation.  No doubt she only got this far because most people – like me! – didn’t ever bother to read the book!

Some examples:

  • She zings Citibank before the meltdown for an average mortgage interest rate of about 17% and in a tell-all story relates the tale of a one-day consulting gig she did for them about bankruptcy and families in which she argued that Citi should simply not lend to people overstretched, and a senior executive dismissed the entire argument because jacking the overextended with more products and predatory interest rates was essentially their golden goose and business model.
  • She tells a moving story of a meeting with Hilary Clinton as a former First Lady and how quickly Clinton got the importance of opposing the passage of a proposed new corporate-backed bankruptcy law and committed her support to the fight, but then once elected as a U.S. Senator from New York, turned around completely to support her new constituency on Wall Street rather than women.  She everything but says that Clinton and senior Senator Chuck Schumer were bought and paid for by campaign contributions.
  • She comes out for universal school vouchers and total school choice for good reasons perhaps, but based on the fuzziest of political and economic premises about what would really create “equity” in school offerings, all of which must have driven the teacher unions up a wall.

Generally she drives the hammer hard on the nail.

Over-consumption is roundly dismissed as the economic trigger of the debt crises, which she argues sprang directly from middle class parents trying to find two critically essential things for their children:  good schools and safety.  In the midst of a national education crises and too often random urban crime, both parents were not only forced to work, but also ended up doubling down on inflated house mortgages in the best school districts:  the two-income trap.  Unfortunately, doing so eliminated in the Warrens argument, the historic bench strength of having a reserve worker ready (the wife) that could go to work in a crisis brought on my job loss, medical bills, or family breakups.  Folks were already stretched over the line so tautly that the least twist and they were pulled under.

I can’t say how happy I was to read this book and find out that Elizabeth Warren is fellow traveler on the citizen wealth bus.  I could go on and on, but every once in a while it’s such a pleasure to go back to the first sources and find with total surprise that someone is even better than I could have imagined.

Props to President Obama for stepping up and finding a way for Warren to work in the White House and make the Consumer Financial Protection Agency happen!  The beginnings always prejudice the ends, so she’s in the right space, regardless of whether or not she can run the show.  Better to have a toe smasher than a tiptoe dancer protecting the financial futures of desperate families!

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