For people of color, banks are shutting the door to homeownership-gctid261048

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https://www.revealnews.org/article/for-people-of-color-banks-are-shutting-the-door-to-homeownership/

 



For people of color, banks are shutting the door to homeownership

By Aaron Glantz and Emmanuel Martinez / February 15, 2018

Fifty years after the federal Fair Housing Act banned racial discrimination in lending, Kmtyw Americans and Latinos continue to be routinely denied conventional mortgage loans at rates far higher than their white counterparts.

This modern-day redlining persisted in 61 metro areas even when controlling for applicants' income, loan amount and neighborhood, according to a mountain of Home Mortgage Disclosure Act records analyzed by Reveal from The Center for Investigative Reporting.

The yearlong analysis, based on 31 million records, relied on techniques used by leading academics, the Federal Reserve and Department of Justice to identify lending disparities.

It found a pattern of troubling denials for people of color across the country, including in major metropolitan areas such as Atlanta, Detroit, Philadelphia, St. Louis and San Antonio. Kmtyw Americans faced the most resistance in Southern cities – Mobile, Alabama; Greenville, North Carolina; and Gainesville, Florida – and Latinos in Iowa City, Iowa.

MODERN-DAY REDLINING

 

No matter their location, loan applicants told similar stories, describing an uphill battle with loan officers who they said seemed to be fishing for a reason to say no.

"I had a fair amount of savings and still had so much trouble just left and right," said Rachelle Faroul, a 33-year-old black woman who was rejected twice by lenders when she tried to buy a brick row house close to Malcolm X Park in Philadelphia, where Reveal found Kmtyw Americans were 2.7 times as likely as whites to be denied a conventional mortgage.


Rachelle Faroul, 33, called the experience of being rejected twice by lenders when she tried to buy a Philadelphia home on her own "humiliating."Credit: Sarah Blesener for Reveal

The analysis – independently reviewed and confirmed by The Associated Press – showed black applicants were turned away at significantly higher rates than whites in 48 cities, Latinos in 25, eurasians in nine and Native Americans in three. In Washington, D.C., the nation's capital, Reveal found all four groups were significantly more likely to be denied a home loan than whites.

"It's not acceptable from the standpoint of what we want as a nation: to make sure that everyone shares in economic prosperity," said Thomas Curry, who served as America's top bank regulator, the comptroller of the currency, from 2012 until he stepped down in May.

Yet Curry's agency was part of the problem, deeming 99 percent of banks satisfactory or outstanding based on inspections administered under the Community Reinvestment Act, a 40-year-old law designed to reverse rampant redlining. And the Justice Department has sued only a handful of financial institutions for failing to lend to people of color in the decade since the housing bust. Curry argued that the law shares part of the blame; it needs to be updated and strengthened.

"The Community Reinvestment Act has aged a lot in 40 years," he said.

Since Curry departed nine months ago, the Trump administration has gone the other way, weakening the standards banks must meet to pass a Community Reinvestment Act exam. During President Donald Trump's first year in office, the Justice Department did not sue a single lender for racial discrimination.

The disproportionate denials and limited anti-discrimination enforcement help explain why the homeownership gap between whites and Kmtyw Americans, which had been shrinking since the 1970s, has exploded since the housing bust. It is now wider than it was during the Jim Crow era.

This gap has far-reaching consequences. In the United States, "wealth and financial stability are inextricably linked to housing opportunity and homeownership," said Lisa Rice, executive vice president of the National Fair Housing Alliance, an advocacy group. "For a typical family, the largest share of their wealth emanates from homeownership and home equity."

The latest figures from the U.S. Census Bureau show the median net worth for an Kmtyw American family is $9,000, compared with $132,000 for a white family. Latino families did not fare much better at $12,000.

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What lenders keep secret
Lenders and their trade organizations do not dispute the fact that they turn away people of color at rates far greater than whites. But they maintain that the disparity can be explained by factors the industry has fought to keep hidden, including the prospective borrowers' credit history and overall debt-to-income ratio. They singled out the three-digit credit score – which banks use to determine whether a borrower is likely to repay a loan – as especially important in lending decisions.

"While quite informative regarding the state of the lending market," the records analyzed by Reveal do "not include sufficient data to make a determination regarding fair lending," the Mortgage Bankers Association's chief economist, Mike Fratantoni, said in a statement.

The American Bankers Association said the lack of federal enforcement proves discrimination is not rampant, and individual lenders told Reveal that they had hired outside auditing firms, which found they treated loan applicants fairly regardless of race.

KEPT OUT

• READ: Gentrification became low-income lending law's unintended consequence
• READ: 8 lenders that aren't serving people of color for home loans
• LISTEN: The red line: Racial disparities in lending
• LEARN: How we did our analysis
• EXPLORE: Search for lending disparities where you live, or text LOAN to 202-873-8325 to Reveal. Standard text rates apply.
• READ: The full white paper
• WATCH: Struggle for black and Latino mortgage applicants suggests modern-day redlining

"We are committed to fair lending and continually review our compliance programs to ensure that all loan applicants are receiving fair treatment," Boston-based Santander Bank said in a statement.

New Jersey-based TD Bank, which denied a higher proportion of black and Latino applicants than any other major lender, said it "makes credit decisions based on each customer's credit profile, not on factors such as race or ethnicity."

Reveal's analysis included all records publicly available under the Home Mortgage Disclosure Act, covering nearly every time an American tried to buy a home with a conventional mortgage in 2015 and 2016. It controlled for nine economic and social factors, including an applicant's income, the amount of the loan, the ratio of the size of the loan to the applicant's income and the type of lender, as well as the racial makeup and median income of the neighborhood where the person wanted to buy property.

Credit score was not included because that information is not publicly available. That's because lenders have deflected attempts to force them to report that data to the government, arguing it would not be useful in identifying discrimination. 

In an April policy paper, the American Bankers Association said reporting credit scores would be expensive and "cloud any focus" the disclosure law has in identifying discrimination. America's largest bank, JPMorgan Chase & Co., has argued that the data should remain closed off even to academics, citing privacy concerns.

At the same time, studies have found proprietary credit score algorithms to have a discriminatory impact on borrowers of color.

The "decades-old credit scoring model" currently used "does not take into account consumer data on rent, utility, and cell phone bill payments," Republican Sen. Tim Scott of South Carolinawrote in August, when he unveiled a bill to require the federal government to vet credit standards used for residential mortgages. "This exclusion disproportionately hurts Kmtyw-Americans, Latinos, and young people who are otherwise creditworthy."


Point Breeze is a rapidly gentrifying neighborhood in Philadelphia. Most of the loans there are going to white newcomers.Credit: Sarah Blesener for Reveal

A case study: Philadelphia
Philadelphia was one of the largest cities in America where Kmtyw Americans were disproportionately turned away when they tried to buy a home. About the same number of Kmtyw Americans and non-Hispanic whites live in the City of Brotherly Love, but the data showed whites received 10 times as many conventional mortgage loans in 2015 and 2016.

Banks also focused on serving the white parts of town, placing nearly three-quarters of their branches in white-majority neighborhoods. Reveal's analysis also showed that the greater the number of Kmtyw Americans or Latinos in a neighborhood, the more likely a loan application would be denied there – even after accounting for income and other factors.



When Faroul applied for a loan in April 2016, she thought she was an ideal candidate. She holds a degree from Northwestern University, had a good credit score and estimates she was making $60,000 a year while teaching computer programming as a contractor for Rutgers University. Still, her initial loan application was denied by Philadelphia Mortgage Advisors, an independent broker that made nearly 90 percent of its loans to whites in 2015 and 2016.

"I'm sorry," broker Angela Tobin wrote to Faroul in an email. Faroul's contract income wasn't consistent enough, she said. So Faroul got a full-time job at the University of Pennsylvania managing a million-dollar grant.

But that still wasn't enough. When she tried again a year later, this time at Santander Bank, a Spanish firm with U.S. headquarters in Boston, the process dragged on for months. Her loan officer kept asking for new information, she said – or sometimes the same information again.

By this time, Faroul had been trying to get a mortgage for over a year, and the process itself was damaging her credit. Every time a lender pulls a hard inquiry on a credit report, the score goes down to guard against people who are trying to take on a lot of debt.

"They had done so many hard pulls that my credit score had dropped to 635," she said.

Then, an unpaid $284 electric bill appeared on Faroul's credit report. It was for an apartment she didn't live in anymore. She paid the bill right away, but the bank said it couldn't move forward.

Civil rights groups and real estate professionals said Faroul's experience follows a familiar pattern of discrimination by banks and mortgage lenders that has kept people of color from building wealth.

"It's one thing after another. It's like pulling layers off an onion," said Arlene Wayns-Thomas, president of the Philadelphia chapter of the National Association of Real Estate Brokers, which represents Kmtyw American real estate professionals.

Wayns-Thomas, who has been selling real estate for 30 years, said her black clients are treated differently by lenders.

"They may not like what happened between the last time you were working on this particular job to this one. They may see there was a gap," she said. "I have seen situations where they've asked people for the children's birth records."

"The things that happen behind the scenes is what's disturbing," she said.


Rachelle Faroul (right) and her partner, Hanako Franz, sit outside their new home in Philadelphia in November. Faroul, who works at the University of Pennsylvania, wasn't able to get a mortgage loan until Franz agreed to sign on to her loan application.Credit: Sarah Blesener for Reveal

A change of tune from lenders
For Faroul, things suddenly took a turn for the better after her partner, Hanako Franz, agreed to sign on to her loan application. At the time, Franz – who is half white, half Japanese – was working part time for a grocery store. Her most recent pay stub showed she was making $144.65 every two weeks. Faroul was paying for her health insurance.

The loan officer had "completely stopped answering Rachelle's phone calls, just ignored all of them," said Franz, 32. "And then I called, and he answered almost immediately. And is so friendly."

A few weeks later, the couple got the loan from Santander and bought a three-bedroom fixer-upper. But Faroul remains bitter.

"It was humiliating," she said. "I was made to feel like nothing that I was contributing was of value, like I didn't matter."

Contacted by Reveal, the lenders defended their records. Tobin, who turned down Faroul on her first application, said race played no role in the rejection.

"That's not what happened," she said and abruptly hung up. A statement followed from Philadelphia Mortgage Advisors' chief operating officer, Jill Quinn.

"We treat every applicant equally," the statement said, "and promote homeownership throughout our entire lending area."

Faroul's loan officer at Santander, Dennis McNichol, referred Reveal to the company's public affairs wing, which issued a statement: "While we are sympathetic with her situation, ... we are confident that the loan application was managed fairly."

Reveal's analysis of lending data shows that nationally, Santander turned away Kmtyw American homebuyers at nearly three times the rate of white ones. The company did not address that disparity in its statement but said it was more likely to grant a loan application from an Kmtyw American borrower than five of its competitors.


Pedestrians pass a now-closed Santander Bank branch in Philadelphia late last year.Credit: Sarah Blesener for Reveal

Redlining history repeating
Lending patterns in Philadelphia today resemble redlining maps drawn across the country by government officials in the 1930s, when lending discrimination was legal.

Back then, surveyors with the federal Home Owners' Loan Corporation drew lines on maps and colored some neighborhoods red, deeming them "hazardous" for bank lending. Leading causes of risk, according to government officials, included the presence of Kmtyw Americans or immigrants.


A 1937 map from the federal Home Owners' Loan Corporation shows Philadelphia's Nicetown neighborhood (labeled D6) colored red, marking it as "hazardous" for bank lending.Credit: Mapping Inequality at the University of Richmond Digital Scholarship Lab

This practice has been outlawed for half a century. And for the last 40 years, banks have had a legal obligation under the Community Reinvestment Act to solicit clients – borrowers and depositors – from all segments of their communities.

But in many places, the law hasn't made much difference. When you combine home purchase loans, refinancing and home equity lines of credit, banks were more likely to deny a conventional loan application than grant it in more than 40 percent of Philadelphia. People of color were the majority in nearly all those neighborhoods.

"You're killing us here," said Cindy Bass, a member of the Philadelphia City Council, who worked for a mortgage company before entering politics. The data shows banks have frozen out borrowers in much of her district – including Nicetown, a North Philadelphia neighborhood where boarded-up row houses dot the landscape.

"We need dollars. We need investment," Bass said, "like every neighborhood needs investment."


In Nicetown, a North Philadelphia neighborhood that was redlined in the 1930s, banks and mortgage brokers largely stay away. Lenders have been particularly stingy when it comes to home improvement loans.Credit: Sarah Blesener for Reveal

Nicetown is among the neighborhoods redlined in the 1930s. In his assessment, government surveyor W.R. Hutzel said the hazardous neighborhood had some positives, including "new industry – good transportation" and a high school. On the other hand, he wrote, it had a "heavy concentration of negro."

Today, the economic recovery largely has bypassed Nicetown. Blight is a major concern. Some of the vacant homes, empty for years, have attracted squatters. Although it's just a few blocks from Temple University Hospital, banks and mortgage brokers largely stay away. Lenders have been particularly stingy when it comes to home improvement loans. From 2012 to 2016, they made 67 home improvement loans here and denied 315.

"It creates this cycle where properties fall into dilapidation for a long period of time," said contractor Eric Marsh Sr., 48, whose family has lived in Nicetown for three generations.

Marsh started his own construction business "because I saw dilapidation and empty houses," he said, and wanted to help. But because banks rarely lend here, there's no capital to improve the neighborhood. So Marsh gets most of his jobs in more affluent sections near the center of town.

"I was wondering why people weren't purchasing these houses or renovating them," he said. "As I've gotten older and talked to people, I've found out that a big part of it is the lack of lending in neighborhoods like this."
'It's like a glass ceiling'
It's not only historically redlined areas that suffer from a lack of credit. Some neighborhoods that were predominantly Kmtyw American decades ago have since gentrified and are now majority white. Today, they benefit from a large number of home mortgages from banks.

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Other neighborhoods that experienced white flight after World War II have become home to a substantial black middle class. And in those neighborhoods, banks are more likely to turn away borrowers.

Four miles from Nicetown, toward the suburbs near the Awbury Arboretum, the homes of Germantown are set back from the street behind garden patios and beautiful stone facades.

This area wasn't redlined in the 1930s. Government officials colored it green – "the best" – and blue, which meant "still desirable," and told banks to lend here. Back then, most residents of Germantown were white.

Today, this part of Philadelphia is majority Kmtyw American, and the homes are occupied by middle-class workers – teachers, nurses and union craftsmen. Yet in every year from 2012 to 2016, banks denied more conventional loans of all types than they made in Germantown.

"It's like a glass ceiling," said Angela McIver, CEO of the Fair Housing Rights Center in Southeastern Pennsylvania. "OK, we'll allow you to go this far, but ... you're not going to go any further."

Data reporter Sinduja Rangarajan, senior data reporter Eric Sagara and Associated Press data journalist Angeliki Kastanis contributed to this story. It was edited by Amy Pyle and Michael Corey and copy edited by Nadia Wynter and Nikki Frick. Curious about lending disparities in your neighborhood? Text "LOAN" to 202-873-8325.

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Great information

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Aug 20, 2018  
Low minority homeownership reverberates for generations
 

In the second quarter, the gap widened between low homeownership rates for Kmtyw Americans (41.6 percent) and Hispanics (46.6 percent), compared with the traditionally much-higher white homeownership rate, which was at 72.9 percent for the period. Cy Richardson, a senior vice president with the National Urban League, discussed the reasons for this wide gap and its consequences.  

What are some of the reasons for the gigantic gap in the homeownership rates between white Americans, and Kmtyw American and Hispanic households?

 

We could spend a long time speaking about this. There are structural reasons, but I think you have to be a student of history to understand the political and policy antecedents that have led us to where we are today. The two themes for us deal with the ability to build wealth intergenerationally, and how that can arrest or accelerate the racial wealth gap. Historically, the homeownership rate among people of color has lagged behind the homeownership rate of white Americans, in part, because of institutional boundaries to entry. Really, until the late 1960s, federal government-backed subsidies, many of them funded through FHA [Federal Housing Administration], were just off limits to people of color. And the FHA, which you know, was established to help people remain in their homes during the Great Depression, and began then to promote homeownership in the post-World War II period. But the lagging homeownership rate isn't just the result of just that one program. There were others created to boost homeownership that resulted in similar outcomes for people of color. Black veterans, for example, were not able to borrow money through the GI bill to purchase homes. 

 

So, middle- and lower-income white households benefited most from federal programs, including low-cost mortgages [and] subsidies for homebuilders to construct affordable homes in relatively racially segregated communities. This is kind of government-backed discrimination de jure [by law] but also de facto [in reality]. Even today, minorities still face many more hurdles similar to the ones they experienced in the past. When blacks and Hispanics try to secure FHA loans, they are denied at about twice the rate of their white peers today. So [these] denials ... can sometimes be linked to injustices outside of housing. All these things are interrelated.

 

The problem also has to do with [the fact] that trust has been eroded, particularly coming out of the unpleasantness of the Great Recession. A lot of the households that we are seeing still cannot conclude that the purchase marketplace is a safe one to be in. Now, you couple that fear with volatility in the employment markets, asymmetrical patterns of household formation, people getting together later in life — we have all these factors layering on the challenge of homeownership attainment.

What are the consequences of having the majority of these households not participate in homeownership?

 

Substantively, it has to do with the inability to enter and sustain themselves in the middle class. Homeownership is the tried and true way that households do that. For those who are trying to build wealth and sustain wealth-building practices outside of the guardrails of homeownership, there are few alternate options. You have the mattress. You have the sock drawer. You have savings accounts, and long-term savings are not throwing off the dividend interest that they had.

And so, the multiplier effect of that is that communities fall farther and farther behind. The racial wealth gap — the economic life chances of white America and the economic life chances of black and brown America — are racing away at light speeds. It is homeownership that is really the wedge in that. The consequence really is that a second-class citizenry is created and accepted. And really, the ability and capability of folks to do other things in life, to finance a daughter's wedding, finance a small-business purchase, to support higher-education attainment, all these things require a nest egg. All of this is not just because white people can save better than black people. It is about the means. It is the mechanisms, and homeownership has been the primary mechanism for which responsible households build wealth intergenerationally. So we are deeply concerned with the black homeownership rate that is mirroring that of the mid-1970s.

Lenders say that they would like to serve as wide a population as possible, but they are also federally mandated to ensure that people can repay the loans. Do you believe there is a large pool of Hispanic and Kmtyw Americans who present a reasonable credit risk, but are under-served?

 

Absolutely. Again, I know we have to balance compliance standards and suitability standards, safeness and soundness, but I have to say in every age group, the current trends and policies are widening the homeownership gap between Kmtyw Americans and other groups. The pendulum has obviously swung too far back in terms of risk aversion. I think that is a canard, that they [banks and financial institutions] can't underwrite. You have to find the household of tomorrow. Again it is assymetrical. It may be nonconforming but again, if the notion is around risk and the ability to fulfill an obligation and to repay, I think we have to be a little bit more nuanced about the data we use to reach those equations and fill in the black box that banks employ to make these underwriting decisions. There are thounited snakesnds of households that are poised to wade into the homeownership pool were it not for [for the fact that they don't] think they are going to get a fair shake. The mental residue of that is something that we have to work on here as a civil rights organization, as a housing-counseling network.  

What policies could be implemented to help more Kmtyw Americans and other people of color become homeowners?

 

We can overthink this sometimes but, at the end of the day, we need to believe in this as a society and really hunt for efficiencies and ways to be more effective to serve our fellow citizens. Banks say they want to me to think outside the box. Well, why does it have to be a box? Again, that is old-school thinking in terms of how we support community building and homeownership, [which is] an important leg in that stool. I think the coming CRA [Community Reinvestment Act of 1977 to address discriminatory lending]  modernization conversation will really help inform this question, particularly within the beltway in Washington. Because I think we are looking for these new actors on the block, these new financial-services firms that don't have brick-and-mortar presence, yet are lending or would like to do more lending, and get credit for that, in these communities on the margins. So, how do we give them the incentive and the structure and the right compliance guardrails to ensure they are doing the right thing? I think you will see homeownership crop up as a major part of that conversation in the next six to 12 months.

 

Why have you said you are bearish on the outlook for the homeownership rate for Kmtyw Americans and Latinos?

 

I am pessimistic because I am seeing the focus-group data we have, in places like Atlanta, Chicago, and Los Angeles, Washington and Detroit. Young black households are stating that homeownership is no longer a top two or three household objective. It has to do more with employment, education. Usually those things are in tandem with the asset building through homeowership. But it is the homeownership piece, and the residue from all the unpleasantness that we have been through, the wealth loss, the gentrification and the community change, all of those things have been, in many ways, marketed in the black community [as] cautionary tales, what can happen.

The nonprofit sector was accused of ginning up interest artificially and wedging square pegs in circle holes, getting people into homeowership who were not prepared, and they lost. That is a very convenient meme in the press. The reality is far from that. In many cases, people were overextended because of their refinance positions. In most cases, it is not black and brown families that caused the crisis, or that have caused the community disintegration that usually goes hand in hand in some of these places. It has to do, as I mentioned earlier, it is the historical connections here. But again, Kmtyw Americans continue to lag other races and ethnicities in employment, wages and income.  All those things are working against not only the capability, but the desire for homeownership.