By New Times
By Connor Radnovich
By Robrt L. Pela and Amy Silverman
By Ray Stern
By Keegan Hamilton
By Matthew Hendley
By Monica Alonzo
By Monica Alonzo
The Community Reinvestment Act, a federal law passed in 1977, requires banks to make their services available to residents in areas where the median household income is below 80 percent of the national average--areas like census tract 1116. Regulatory agencies can stop banks from merging or otherwise expanding if they don't comply with the law.
Community groups have successfully used the CRA's powers against some institutions with poor middle- and low-income mortgage records. Just a few years ago, several Phoenix and Ohio community organizations banded together, persuading regulators to delay the merger of Banc One with Valley National Bank. The advocacy groups stopped their protests after Banc One agreed to make $67 million in inner-city loans and neighborhood-improving investments in Cleveland. The merger went through, and Bank One Arizona was born.
But Phoenix activists say that such tough enforcement actions are too few and far between. Because of changes in the lending industry, they say, the CRA has relatively little impact on loans to low-income communities.
The proof of the act's impotence, they say, is as close as a drive through South Phoenix.
"If you look at the area that has been traditionally looked at as the minority area, that area has the lowest amount of recorded loans of any area throughout the city," says Henry Wade, housing chairman for the Maricopa County NAACP. "That is redlining."
Once banks and mortgage companies stop lending money for home mortgages, the battle to keep a neighborhood viable is half-lost. Since no one can get financing to buy a house there, property values plummet. Eventually, prices on homes in the neighborhood drop enough that bigger fish move in, buying the houses as rental property.
Renters, generally, do not maintain homes as well as owners. Longtime residents of the area, watching rental properties in their neighborhood decay, decide to sell their houses and leave. Others, forced to move for family or business reasons, often simply walk away from their property. Homes are foreclosed upon; as they sit vacant, they become vulnerable to vandalism. Crime in the neighborhood increases.
Residents of surrounding areas, alarmed at what they see happening in the next neighborhood over, begin to get jittery themselves, and think about moving into the suburbs. Eventually, many will.
The previous account may draw an oversimplified picture of the urban decay cycle. By most all accounts, though, census tract 1116 began going through that cycle about 20 years ago. The situation in South Phoenix is even worse, though at first glance it may not appear to be. In 1994, there was actually high mortgage activity taking place south of the Salt River. But most of the loans were large--ranging from $150,000 to $300,000--and they went to whites who purchased apartment complexes, rather than to people buying the single-family homes that stabilize neighborhoods.
The federal data show that in 1994, regardless of race, applicants for mortgages on properties in South Phoenix were two and a half times more likely to be turned down than those attempting to purchase homes in Glendale. They were four times more likely to be turned down than buyers in Ahwatukee. And they were seven times more likely to be turned down than Scottsdale applicants.
Banks and mortgage companies answer charges of neighborhood redlining by flatly denying they avoid lending money in any particular area of town. Rather, they say, the people who want to buy homes in certain areas have poor or no credit histories, and simply do not qualify for financing.
In the eyes of activists, however, the claim doesn't stand up.
"It's just a way that the banks are able to justify it," says the NAACP's Wade. And applying conventional standards of credit across the board, Wade says, deprives solid, reliable citizens of the chance to become homeowners, and to improve their communities.
Federal law requires banks to make a certain percentage of their mortgage loans to members of minority and low-income groups, regardless of their creditworthiness.
Some large banks have whole offices that do nothing but handle CRA information. Staffers examine loan-rejection rates by race and income level and study lending records in low-to-moderate-income neighborhoods.
There is a weakness in the CRA, though. It applies only to institutions where deposits are insured with tax money. That covers banks, but excludes private mortgage companies. Several years ago, when the law was passed, mortgage companies made up much less of the national mortgage business than they do today. Now they hold the bulk of the money in the country's mortgage lending pool.
Mortgage companies differ from banks in that rather than holding some of the notes themselves ("portfolio lending," in the parlance), they "bundle" huge groups of loans, then sell them to investors in the so-called "secondary market."
Often, mortgage companies are owned by or affiliated with banks.
For example, Bank One Arizona, a financial monolith, has one of the better fair-lending records among local institutions. It shares its parent company, however, with Banc One Mortgage Corporation, which has one of the poorest patterns of lending to minorities and low-income groups. The two entities write comparable numbers of home loans in Phoenix.