Bank One Arizona has an entire staff ensuring it complies with the CRA. Banc One Mortgage has no such worries.

In order to offer the most attractive bundles to investors, mortgage companies shy away from making loans that would be considered anything but low risk--such as loans in lower-income areas, or to lower-income applicants.

Critics say the CRA's effectiveness has diminished every year since the law's passage, as the importance of mortgage companies as lenders has increased. And there are other reasons fair-housing advocates say the law has resulted in little real progress against redlining in Phoenix.

If lenders were serious about minority lending, activists say, they would make loans and other banking services more accessible, by opening branches in lower-income neighborhoods. Also, lenders would adjust their credit requirements--not lower them, but modify them--so that lower-income people could use good payment histories on debts other than credit cards or car loans (which they often do not have) as documentation of creditworthiness.

"There are certain underwriting practices that don't make it easy for lower-income people to get loans," says Martin Shaloo, of the Association of Community Organizations for Reform Now. "For instance, a lower-income person might do all their transactions in cash. They might not have any credit."

Shaloo says lenders must be willing to examine noncredit payment histories--such as utility and telephone bills and rent--and accept timely payments on those accounts as evidence of financial responsibility.

Also, Shaloo says, the extended families that appear in many lower-income households often pool resources. This practice can work against younger members of the family when they seek to buy a home.

"The children or young adults may be kicking money into a pool," Shaloo says, "so you have somebody who reports an income of $12,000 a year and somehow they manage to save $8,000. You have to document how you got that money for the lender."

It may come as a surprise to some people that in many low-income groups, it is common not to have a checking account. It is not at all surprising to Thunderbird Bank's Whitni Smith, the loan officer who gave the Johnsons a mortgage after other companies refused to lend to them.

"There's a lot of things in traditional [loan] guidelines that don't make room for real-life cultural differences," she says. "It may be easier for some people to not have a checking account. It's easier for them not to hassle with it. Plus, there aren't very many banks in some parts of town, like South Phoenix."

Smith says that in the last six months, she has written about 40 loans for properties all over town, including Glendale, Tolleson and Phoenix. This year, she says, she is proposing that her bank write $40 million in loans for affordable housing. That's a lot of loans, at just $40,000 or $50,000 each.

Often, Smith says, the hard part about lending money to lower-income people is convincing them it is worthwhile to apply.

"They're very scared," she says. "They don't understand what you're asking for. They don't understand things that I think a lot of middle-class people take for granted. They're filled with a lot of misconceptions, like, if you've had one credit problem, forget it. If you've changed jobs in the last two years, forget it. Little things like that.

"I'm willing to take some bad credit if it makes sense."
These misconceptions, Smith says, are exacerbated by larger, less-flexible institutions that either can't or won't lend money to low-income people and minorities. Also, most loan officers are paid by commission; they may be hesitant to put in the extra time a nontraditional application takes, because the loan amount is usually small.

And a small loan means a small commission for the loan officer.
"I think so many lenders have all these inexperienced, unknowledgeable people out there who want a commission check," she says. "And they don't have time for these $40,000 loans, because they're not going to make any money. They see one little problem [in the loan application] and boom, it's not going to work.

"People have been scared off."

The Home Mortgage Disclosure Act, a 20-year-old federal law, requires banks and mortgage companies to reveal detailed data about their lending patterns on the basis of location, race and income. An extensive survey of HMDA data by the National Community Reinvestment Coalition, a Washington, D.C.-based watchdog group, shows that if you are a minority or lower-income borrower, getting money to buy a house in Phoenix is hard.

According to the federal data, the approval rate for mortgage applications by minorities in Phoenix is just 7.9 percent--lower than in all but six of the nation's 20 largest cities.

Of the nation's 50 or so "worst lenders"--institutions that fail to seek, encourage or reward prospective lower-income borrowers--three are here in the Valley of the Sun. Many more local lenders did not make the national list but nevertheless have dismal low-income lending records of their own. The local list is dominated, as is the national one, by mortgage companies. And over the last five years, the worst Phoenix lender for minorities and low-income people has been Mellon Mortgage Company. Application rates are considered an important indicator of how serious a commitment lenders have made to serving low-income customers. Of the 55 institutions that make up nearly the whole Phoenix mortgage market, Mellon has the second-worst record when it comes to attracting minority borrowers. In 1993 (the last year for which data were analyzed for the NCRC study), just over 3 percent of Mellon's applicants were nonwhite. Even in Phoenix, where minority and low-income application rates are on the low side compared to the rest of the country, this is barely a third of the market average.

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