Gentrification Became Low-Income Lending Law’s Unintended Consequence
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PHILADELPHIA – Jonathan Jacobs had almost no savings, a modest income and a credit report marred by a disputed cellphone bill. But he easily bought a newly renovated row house in Point Breeze, a South Philadelphia neighborhood that’s historically African American.
“It took about 15 minutes” to fill out the paperwork, the career counselor said. “Now I pay less to own a house than I did to rent an apartment. That’s the American dream.”
Jacobs, who is white, got a special home loan from New Jersey-based TD Bank that is designed to help low-income people and blighted neighborhoods, where banks are required to lend under the landmark Community Reinvestment Act of 1977. The law was designed to correct the damage of redlining, a now-illegal practice in which the government warned banks away from neighborhoods with high concentrations of immigrants and African Americans.
But the law didn’t anticipate a day when historically black neighborhoods would be sought out by young white homebuyers. So instead of lending to longtime black residents of Point Breeze, most of the loans there are going to white newcomers such as Jacobs.
The Community Reinvestment Act “is based on geography, so it’s perfectly possible to comply with CRA and have that pattern,” said Patricia McCoy, a law professor at Boston College who oversaw mortgage policy initiatives for the Consumer Financial Protection Bureau under President Barack Obama. “That’s not the idea, of course, but the law allows it.”
The result is nearly all financial institutions nationwide have passed their Community Reinvestment Act inspections since 2009, even though racial disparities in lending remain as pronounced as ever.
Reveal from The Center for Investigative Reporting analyzed 31 million mortgage records made available under the Home Mortgage Disclosure Act and found 61 metro areas across America where people of color – African Americans, Latinos, Asians and Native Americans – were denied conventional home purchase loans at significantly higher rates than whites. That was true even after controlling for nine economic and social factors, including applicants’ income, the size of the loan they sought and the neighborhood where they wanted to buy.
African Americans or Latinos were more likely to be turned away in major metropolitan areas such as Philadelphia, Detroit, Atlanta and Washington and smaller cities such as Iowa City, Iowa; Sumter, South Carolina; Tacoma, Washington; Vallejo, California; and Little Rock, Arkansas.
“We’re talking about the same issues in 2017 that we were talking about in the 1940s,” said Arlene Wayns-Thomas, president of the Philadelphia chapter of the National Association of Real Estate Brokers, which represents African American real estate professionals.
White newcomers get the edge
In Point Breeze, signs of gentrification abound. White homebuyers stretch at a new yoga studio and brunch at a Zagat-rated bistro where the grilled cheese costs $11.95 and includes shaved apples and quince membrillo.
On a Sunday morning in front of the yoga studio, Julia Bringhurst talks real estate with her friends. Bringhurst, 49, who is white, works as an employee benefits manager at Morgan, Lewis & Bockius LLP, one of the biggest law firms in the city. She bought a Point Breeze home in 2013, when gentrification there was just getting underway.
Hagana (left) and Callie Kim are both lawyers and owners of a new yoga studio in Point Breeze. They’re also landlords, scooping up several properties thanks to special low down payment loans. “It was easy,” Hagana Kim said.
Banks meet their Community Reinvestment Act obligations by marketing affordable loan products to the neighborhood’s newcomers, who typically are able to get a conventional mortgage with a 3 percent down payment, compared with the industry’s gold standard of 20 percent.
Bringhurst said she made lenders compete for her business: “You kind of sit there and push them around a little bit.”
Chatting with her were the owners of the yoga studio, Callie and Hagana Kim. They’re both lawyers in their early 30s. Callie is white and from rural southern Illinois. She works at the same law firm as Bringhurst. Hagana is Asian.
The Kims moved to this neighborhood in 2015, buying a three-bedroom, three-bathroom brick row house with a special low down payment loan from Citizens Bank. It was such a good deal that they went on to become landlords, picking up four more properties, two with just a few thousand dollars down.
Hagana Kim said banks and mortgage brokers compete aggressively for their business.
“It was easy,” he said. “Once you have a little money, it’s really easy to make a lot more.”
Jonathan Jacobs’ bank, TD Bank, offers an even more attractive deal, waiving costly mortgage insurance requirements for low down payment loans. The bank’s Right Step loan, which is offered to meet its obligations under the Community Reinvestment Act, is available to anyone seeking to buy in a low-income neighborhood, regardless of how much money that person makes. But government data analyzed by Reveal – independently reviewed and confirmed by The Associated Press – shows black and Latino borrowers have a tougher time.
In the historically black neighborhood of Point Breeze in Philadelphia, financial institutions collectively put $154 million worth of home loans into the hands of white borrowers between 2012 and 2016.
Government data shows TD Bank denied a larger percentage of African American and Latino applicants than any other big U.S. bank in 2015 and 2016. During that time, it turned away 54 percent of African Americans trying to buy homes and 45 percent of Latinos – far higher than the industry averages of 16 percent and 13 percent, respectively. In Philadelphia, TD Bank denied twice as many loan applications from African Americans as it made to them.
But none of that is mentioned in the bank’s most recent Community Reinvestment Act assessment, a 362-page document released by the Treasury Department’s Office of the Comptroller of the Currency in October 2016. The comptroller called TD Bank’s lending performance good in Philadelphia and rated it as high satisfactory for the whole country. In its review, the agency cited the kind of low down payment conventional loan Jacobs got as having a “positive impact” on its rating.
Thomas Curry, who oversaw TD Bank’s review as comptroller under Obama, wouldn’t comment on any particular bank. But he argued that the Community Reinvestment Act needs to be updated.
The current comptroller, Joseph Otting, declined to be interviewed. His office sent a statement: “The Comptroller is interested in modernizing the administration of CRA to ensure it continues to encourage depository institutions to lend to and meet the credit needs of the communities they serve,” it said.
The Trump administration has eased the standards banks must meet to pass a Community Reinvestment Act exam. Last week, Otting’s office met with representatives of the American Bankers Association, which is seeking to weaken the act.
TD Bank declined to discuss its lending. Instead, bank spokeswoman Judith Schmidt sent a statement saying the bank “makes credit decisions based on each customer’s credit profile, not on factors such as race and ethnicity.” It said an internal review of its lending patterns found that, after taking into account creditworthiness, its black and Latino applicants were no more likely to be denied loans than white applicants.
TD Bank also said it actively works “to provide financial education to a diverse population of consumers.” Its denial rate was based on prudent decision making, the company said, which has led to lower delinquency rates among its borrowers.
‘They’re trying to push us out’
Across the Philadelphia area, lenders made 10 times as many conventional home purchase loans to whites as African Americans, even though the two groups represent about the same share of the area’s population. Reveal’s analysis found banks and other mortgage lenders favored white borrowers even in the city’s majority-black neighborhoods.
The disparities were especially acute in Point Breeze. Collectively, financial institutions put $154 million worth of home loans into the hands of white borrowers there between 2012 and 2016, even as they denied nearly twice as many home loans to African Americans as they made in the neighborhood. This was true whether a black applicant wanted to buy a house, refinance an existing loan or take out a home equity line of credit.
“They’re trying to push us out,” said Adrienne Stokes, a 58-year-old black woman, who retired from a career as a bill collector and now works as a home health aide. She’s lived in her Point Breeze home for more than 20 years.
Outside Stokes’ door, the streets are full of concrete mixers and pickup trucks stacked with lumber for nearby condominium projects. The home two doors down, where a black family lived for three decades, has been demolished and is now a hole in the ground. A local developer, Ori Feibush, is building a three-story house with a roof deck.
But longtime residents such as Stokes haven’t been able to take advantage of the development and rising property values that come with it. Instead, they worry about losing their homes.
Some of Stokes’ windows are cracked, and the kitchen linoleum is peeling. In the basement, the sump pump backs up when it rains. The circuit breaker is hanging off the wall.
Adrienne Stokes, 58, a longtime resident of Philadelphia’s historically black Point Breeze neighborhood, was denied a home improvement loan at her local bank, Firstrust Savings Bank.
In 2015, Stokes went to Firstrust Savings Bank, a local institution that operates the only bank branch the neighborhood, seeking a $30,000 home improvement loan to fix up her house.
Although she’d been steadily paying off her mortgage for decades and had about $200,000 in equity in her home at the time, the bank turned her down, citing a low credit score. Like other banks, Firstrust, which passed its most recent Community Reinvestment Act assessment in 2014, rarely lends to African Americans. From 2012 to 2016, it denied more conventional mortgage loans to black borrowers in Philadelphia than it made.
“This is how people lose their homes,” said Wayns-Thomas, the head of the black real estate brokers association’s local chapter. “First, they can’t fix the kitchen, and then it’s a leaky roof and then the electrical. Then the building inspector shows up, and you have to sell, and here comes the gentrification.”
Living in the past
Firstrust’s branch here dates back to the Great Depression. It was opened in 1934 at the corner of Point Breeze Avenue and Reed Street by a Hungarian Jewish immigrant – at a time when Jews often faced lending discrimination.
Inside, the bank’s marketing is an homage to its past. During an October visit, the lobby was dominated by a display of black-and-white photographs of the bank’s founding family. In it, white men in white shirts and ties with close-cropped hair stand next to women in long skirts. Mozart was on the wall, too, but there were no images of African Americans.
Adrienne Stokes (right) meets with Firstrust Savings Bank’s community banking manager Cheryl Power in Philadelphia. The bank denied her application for a $30,000 home improvement loan in 2015, citing a low credit score. She’d been steadily paying off her mortgage for decades and had about $200,000 in equity in her Point Breeze home at the time.
“It looks like the family has accomplished something big, and they want to preserve that memory,” said Angela McIver, CEO of the Fair Housing Rights Center in Southeastern Pennsylvania. “There’s nothing wrong with that, but if you don’t see pictures of diverse groups, the underlying message that you’re sending to diverse people is ‘We don’t do business with you here.’ ”
Firstrust declined to comment. It is actively lending in the neighborhood, however. For example, it’s helping finance a 46-unit townhome project being orchestrated by Feibush, the developer who’s building the three-story home two doors from Stokes.
Point Breeze developer Ori Feibush is orchestrating a 46-unit townhome project that’s being funded by Firstrust Savings Bank – the same bank that denied more conventional mortgage loans to black borrowers in Philadelphia than it made between 2012 and 2016. Feibush dismissed concerns about racial disparities in lending, arguing that they must be caused by economic factors or credit scores.
Feibush, 33, dismissed concerns about racial disparities in lending, arguing that they must be caused by economic factors or credit scores.
“Every major lending institution is lending in this neighborhood,” he said, standing near his electric BMW and his home, which takes up the space of three traditional row houses.
Because of the Community Reinvestment Act, “it’s arguably easier to get financing (in Point Breeze) than just a few blocks north in a more affluent community,” he said. Across the street from the 46-unit project, Feibush has another new development: 22 luxury homes, each with its own roof deck and parking spot.
A 1937 map from the federal Home Owners’ Loan Corporation shows Philadelphia’s Point Breeze neighborhood (labeled D18) colored red, marking it as “hazardous” for bank lending. Credit: Mapping Inequality at the University of Richmond Digital Scholarship Lab
Eighty years ago, Feibush, who is Jewish, might not have had such an easy time getting financing. In some Philadelphia neighborhoods, surveyors from the federal government warned banks away from lending in areas with large numbers of Jews, saying that “infiltration of Jewish into (the) area” had depressed values.
Then, in 1937, Point Breeze was deemed “hazardous” by the government. In his assessment, Jas Livezly of the Home Owners’ Loan Corporation cited “Negro encroachment.”
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.
Read the original at Reveal News From the Center For Public Broadcasting