ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, November 17, 1996 TAG: 9611160016
SECTION: BUSINESS PAGE: 1 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
FIVE years ago this fall, banks and mortgage companies were forced by federal law to release statistics showing the race of customers they approved for home mortgages.
The low figures generated a lot of cluck-clucking and general agreement that something has to be done to help more minorities to own their homes.
Despite well-publicized initiatives by banks, however, the figures appear to be slipping backward.
In the Roanoke metropolitan area, lenders approved 58 percent of the home loan applications they got from blacks last year, compared with 71 percent in 1992, the earliest available figures.
In that same period, approvals for area white borrowers fell to 76 percent from 85 percent. That decline is assumed to be caused by a smaller number of mortgages being refinanced.
What has gone wrong?
The results stem from the effort to correct them, said Alvin Nash, head of the Blue Ridge Housing office of Total Action Against Poverty.
Nash cited NationsBank, among others, which has undertaken an outreach program to encourage mortgage business from low-income and minority borrowers. It, like other banks, set up neighborhood meetings and encouraged residents to apply.
That drive produced large numbers of applications, Nash said, but the people who filed them could not comply with federal lending standards.
NationsBank, Nash said, was "ambushed." The more applications it garnered, the higher its rejection rate climbed. Banks and mortgage companies, he said, "are in a Catch 22."
The problem, according to Nash, is with the standards that banks must adhere to if they also are to pass federal examinations of their loan portfolios. The bank regulators want to be sure banks are not being too risky with depositors' money by lending it unwisely.
Either, Nash said, the standards must change or banks must become more aggressive in their method of complying with them, becoming more flexible in applying the rules. The authorities, according to Nash, must "redefine what constitutes a good loan."
* * *
Is lending to minorities really more risky? Most poor people, especially blacks, pay their rent, Nash said, because shelter is important to them. "Most people I know pay shelter costs."
"The poor get into trouble with health care," he said, because one expensive illness can "trip people up."
The problem, he said, is poverty. But because a higher proportion of blacks are poor, the results fall on them disproportionately.
Despite complaints a decade ago that banks and thrifts arbitrarily refused to lend money in certain sections of the community, Nash said he doesn't believe they are guilty of so-called redlining. But he said lenders must find a middle ground in meeting lending loan standards and filling their obligations to invest in low-income communities.
If banks can't get together to take such an initiative, he said, then Roanoke City Council should hold hearings. Education is the answer, he said, because it can show banks how to be more understanding and teach families "how to budget money and handle loans."
"There's a lot of pressure on banks" from regulators to lend in low-income and minority neighborhoods, said Ted Edlich, executive director of Total Action Against Poverty, a Roanoke agency. Banks approach TAP about co-sponsoring seminars at places such as the Harrison Museum of African American history, he said.
But, Edlich said, "the system of underwriting works against those who are poor and disproportionately against blacks."
As long as underwriting laws limit to 40 percent the ratio between an individual's debt to gross income, loans to poor people will be denied, he said. The need for a down payment to get a mortgage also "works against poor people."
Rather, Edlich said, lenders should tailor home loans to moderate and low-income buyers. One way, he suggested, is to require them to establish escrow accounts for home repairs often needed for older houses. Facing such repairs without a source of cash may cost a low-income family its home.
* * *
Also, black customers are deeply suspicious of banks because of perceived insensitivity to their situations.
The Rev. Charles Green, president of the Roanoke chapter of the National Association for the Advancement of Colored People and retired pastor of the Staunton Avenue Church of God, told a local fair housing conference last month this story of his own relationships with banks.
When he was 21 and working in Washington - many years ago - Green said in an interview, he had to give references before he was allowed to open a bank account. No white person had to do this, he said.
Green bought his first car when he moved to Roanoke, but he was required to have a co-signer on the loan even though he had a good credit record and a good job. And when he bought a house in a predominantly black neighborhood, Green could get a loan for only 15 years while many white borrowers qualified for 30-year mortgages, with lower monthly payments.
By the time Green bought his third house, paying a third of the cost as down payment, he said, his bank extended the term to 17 years, "the limit for me."
And when he recently purchased another car and also borrowed $1,000 for 90 days for a business venture, Green said, his bank demanded that he post his certificates of deposit as collateral - despite their long and satisfactory relationship. And then he found the bank had ordered the car dealership to deliver it the car title as well.
Green declined to identify the bank, saying he believes they are all alike in treatment of applications from minorities. Banks that once openly engaged in redlining and block busting, he said, now engage in more subtle discrimination. "The pattern is still there."
The city has a fair housing board and he sits on it, but Green said the city controls it so that it takes no action. There's no local law aimed at ending housing segregation, he added, and the NAACP has proved many times that landlords deny blacks housing in Roanoke the same day that comparable people who are white get the apartment or house.
Green recalled that former Gov. Linwood Holton held a fair housing conference at Hotel Roanoke more than 20 years ago when banks promised to invest a collective $1 million in "high risk" neighborhoods. That never happened, he said. "Nothing ever changes. I don't think it's going to change."
* * *
But banks have in the last five years pumped money into loans in low-income neighborhoods, spurred by federal bank examiners who consider home mortgage records as part of a bank's rating. Such lending records often are considered when federal regulators are asked to approve banks' mergers.
There also is a new incentive for banks to act because the American Civil Liberties Union last month sued a New Jersey mortgage company for discrimination based on minority lending figures under the federal Home Mortgage Disclosure Act rather than on any specific case.
Lori Spencer, Roanoke's municipal grants coordinator, said information is "hard to capture" about local banks. Her records show only money put up to match federal grants.
Dan Campbell of the Roanoke Redevelopment and Housing Authority says it enjoys a lot of participation from the local banking community.
Between 1981 and 1992, he said, a group of local banks helped to back $6.7 million in revenue bonds to finance home ownership. Recently they helped to fund a $1.3 million program that put more than 75 families in their own homes, but Campbell had no aggregate figures for all area banking programs.
"Local banks have been supportive very open-minded in terms of helping to support affordable housing," Campbell said.
But he noted a recent reduction in federal and state funding for partnerships with banks. Those grants, he said, made low-income housing possible because "the banks can't afford to give the money away. They work real hard to make it work, but they can't afford to lend at a loss."
Teresa W. Walker, assistant vice president for community reinvestment at First Union National Bank of Virginia in Roanoke, said the bank is trying to get people into houses through homebuyers clubs. The goal is to teach people how to buy homes and handle mortgages.
First Union also has developed programs for low-income neighborhoods such as one that lends up to 100 percent of the cost of the house. Buyers need only $500 at the mortgage closing plus the first month's payment. To qualify, families must work through an approved community group and receive financial counseling.
No counseling is needed for another program that lends up to 97 percent of the value of a home, with the buyer putting up 3 percent to 5 percent. No mortgage insurance is required in either program.
First Union holds these loans rather than selling them on the secondary market to investors, Walker said, and its experience so far is that low-income residents pay as well as upper-income families.
Jane Henderson, a former Roanoker who heads Charlotte, N.C.-based First Union's systemwide compliance efforts, said the bank is dedicated to lending for small businesses as well as for mortgages.
Rustam N. Wadia, community investment coordinator in Roanoke for Charlotte-based NationsBank Corp., said the bank has invested $13 billion systemwide in such programs since 1991. In Roanoke, he added, the bank has invested $12.6 million in low and moderate income neighborhoods during the last four years.
In Roanoke, the bank has an affordable housing program with loans of 1 percentage point below the market rate, Wadia said. NationsBank also works with TAP in developing small businesses in low-income neighborhoods.
He believes home ownership will remain the primary focus in the future. "Home ownership drives the stability and prosperity of the community," Wadia said, and it spurs job creation in home construction and rehabilitation.
LENGTH: Long : 176 lines ILLUSTRATION: PHOTO: DON PETERSEN Staff. TAP's Alvin Nash, standing in frontby CNBof new housing being developed on Loudon Avenue, says lenders must
find a middle ground in meeting loan standards and filling their
obligations to invest in low-income communities. color. Graphic:
Chart by staff: Roanoke Valley mortgage loans by race. color. KEYWORDS: MGR