Tag Archives: loans

In South L.A., the share of black households experiencing severe rent burdens is about 50 percent.

Pulling CRA’s Teeth When It Needs to Bite Harder

New Orleans  Dine’ Butler and I had just finished our presentation about the impact of predatory land installment contracts and hedge funds in the Memphis real estate market at the Hooks Institute event at the University of Memphis recently.  As the crowd thinned out, a woman came up to us, not whispering, but holding her hand next to her mouth in an almost conspiratorial manner to say she wanted to thank ACORN for its work in the Home Savers Campaign, but more importantly for its many decades at forcing banks to honor their obligations under the Community Reinvestment Act.

She was now a consultant based in Memphis, but told us a story of the time she had worked at Bank of America’s headquarters in North Carolina in the CRA compliance unit.  She almost laughed confiding the fear and widespread panic that had gripped their department in the months before the annually scheduled meetings with ACORN’s representatives to review the agreement.  She felt ACORN made all the difference in the world in Bank of America’s commitment and implementation of programs under the CRA.  It was gratifying to hear her story, but it has made be more worried about the current efforts by the Office of the Comptroller of the Currency to weaken the Act once again.

Homelessness in America has risen significantly in the figures comparing 2017 and 2018, driven by an over 16% increase in homelessness in Los Angeles.  Reading a deeply researched piece in the New York Times (https://www.nytimes.com/interactive/2019/12/22/us/los-angeles-homeless-black-residents.html), it was impossible not see the African-American community as bearing the brunt of the problem.  Eight percent of black residents of Los Angeles were homeless at one point or another in 2019, among other Angelenos the rate was 1 in 100.  African-Americans make up 8% of Los Angeles County’s population but they are 42% of the homeless with more than 60,000 black Angelenos experiencing homelessness during 2019, according to county records.

How did this happen?  The authors mince no words.  When looking at the epicenter of the homeless crisis and its impact on African-Americans all the data points to South Los Angeles.  The root cause is exactly what the Community Reinvestment Act was passed to solve.

Through a practice known as redlining, real estate agents and lenders marked these neighborhoods as areas undesirable for investment, preventing residents there from obtaining home loans.

By 1970, three-quarters of Los Angeles County’s black population lived in just two dozen neighborhoods in South L.A. That concentration made the area a center of black culture and the site of a burgeoning black middle class.

When manufacturing jobs declined in the 1980s, black unemployment nearly doubled. Drugs and gangs ravaged the neighborhoods, kicking off a period of black flight. Harsh policing and high incarceration hollowed out the community.

In the 1990s, Latinos started moving to the area and the cost of living rose. Black residents moved to Inglewood and the Crenshaw corridor, or out of the county entirely.

These maps show the loss of majority-black neighborhoods in Los Angeles County over the last 50 years.

By 2000, South L.A. had a new racial makeup. Once predominantly black spaces were now majority Latino, and the black residents who remained were among the city’s poorest. The Great Recession hit them the hardest while the recovery offered them the least. About a third of South L.A.’s black residents now live in poverty.

We can’t solve today’s problems without going to the root.  The Community Reinvestment Act is one of the tools we can use, community organizations working with banks, to make sure that families finally were able to access decent and affordable housing.  We need a stronger set of laws and regulations today, as much if not more, than we did forty odd years ago.  We need a CRA with a bigger bite, not with all its teeth pulled.

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Banks and Their Buddies Learned Little to Nothing from the Great Recession

New Orleans     When we can muster up the attention span to read past the latest Mueller investigation activity and the Trump tantrums, we can see what Congress is doing to try to make life easier for the banks and gut Dodd-Frank requirements that force them to pay more attention in class rather than going the “greed is good” route.  It turns out that there is little relief in revisiting the lessons our old friends, the banks, have learned from their reckless behavior that led to the real estate bubble and the Great Recession only a long decade ago.

Of course, they certainly learned to be careful in dealing with the subprime lending market and its exorbitant and often predatory interest rates.  Wrong!  They only learned that they shouldn’t lend in their own names and through direct subsidiaries, but instead should supply nonbank middlemen with billions so that they can take the first fall when that bubble crashes.  The Wall Street Journal calculates that between 2010 and 2017, yes within 2 years of the meltdown and their repeated mea culpas to politicians and customers, they jumped in hard and collectively have made $345 billion in loans to such companies.  Many of these subprime loans are not in real estate, but in auto financing and similar areas that are even more unstable, if that’s possible.   Don’t for a minute think that this is just something the smaller fry are feeding on, because the big fish are goring on these loans.  Major bank loans to nonbank financial companies that loan money to subprime borrowers include Wells Fargo at $81.1 billion, Citigroup at $30.5 billion, Bank of America at $30.2 billion, JP Morgan Chase at $28.1 billion, Goldman Sachs at $22.2 billion and Morgan Stanley at $16.3 billion.

That’s not all that banks and their buddies haven’t learned.  On the wild right there are still pundits and posers who claim that loose credit standards, ACORN and the Community Reinvestment Act triggered the real estate meltdown and the recession, rather than their own activity.  Two researchers from the Urban Institute, which is the real estate industry and developers own think tank, in a working paper plainly state that the blame game is misplaced.

we … show that First-Time-Home-Buyers have similar loan performance as that of repeat buyers. This evidence indicates that the expansion of lending to include more marginal borrowers may not be the main cause of the financial crisis. Instead, the poor performance of the cash out refinances and refinances more generally, are more important contributing factors.

They put the shoe firmly on the foot of cash out refi’s that were popular for hordes of speculators and investors trying to take money out of properties as the bubble got bigger and then being caught short in their ability to pay as the market became overloaded and crashed.  In plain language speculators, big and small, with the help of bank’s emphasis on refinancing, were a much larger factor.

When banks won’t even admit to themselves what their role was in the crisis, how can they learn the lessons to avoid the next disaster?  Playing button-button on subprime loans and having their lobbyists dissemble in Congressional hallways about where the blame really lies are both signs of more meltdowns to come by the refusal to learn the lessons of the last one.

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