Help for Low-Income Home Buyers : Housing: Lenders are showing new interest in complying with the Community Reinvestment Act of 1977--spurred, in part, by allegations of redlining.


Juana and Anastacio Ramirez, along with 15 other low-income families, enjoy affordable and spacious housing in the new Pico Union II apartments in Los Angeles thanks to something strange to them: the Community Reinvestment Act of 1977.

“I’ve never heard of it,” says Juana, 27, who with her husband pays $449 a month for a three-bedroom apartment. “But it’s real important for a lot of people to get the same opportunity that I have.”

The Ramirezes are among thousands of beneficiaries of this obscure federal law, which requires that federally insured commercial banks and thrifts meet the credit needs of their communities, including poor people. The law, often misinterpreted, was enacted to combat redlining, an illegal practice whereby financial institutions limit credit in certain neighborhoods.

The act has only partially alleviated the nation’s affordable housing problem, and banks’ loan commitments under it are only a small fraction of their total loan portfolios. Nonetheless, a range of low-income housing projects nationwide, including those inhabited by the Ramirezes, have been made possible through CRA-related loans.


“A lot of people have benefited (from the CRA) . . . although they might not have the slightest clue as to what CRA is,” says Daniel B. Lopez, president of a consortium of 46 banks called the California Community Reinvestment Corp. that has lent $21 million in fixed-rate loans to developers building affordable housing in San Jose, Hayward, San Francisco, Riverside, Santa Ana and Los Angeles.

Thanks largely to heightened protests by community groups, a new rating system to track CRA compliance, tougher regulatory crackdowns and the new thrift bailout law, some lenders are beginning to do more to meet the spirit of the act.

California’s three larg est banks recently announced major CRA-inspired programs for low-income and minority communities. California’s biggest bank, Bank of America, said in December that it would commit $50 million. Security Pacific Bank pledged $2.4 billion over the next 10 years. And Wells Fargo Bank committed $1 billion over the next seven years.

“Now all of a sudden people are getting their hands slapped, and so we’re trying to play catch-up,” Thomas C. Bell, a vice president at First Savings & Loan in Beverly Hills, told an audience of thrift representatives at a recent conference on CRA compliance.

“If you talk to community groups, they’ll say they have seen more lenders in the last nine months than in the last nine years,” says James Yacenda, community investment officer for the Federal Home Loan Bank in San Francisco.

The new interest of banks and thrifts in complying with the act is a major victory for community and consumer groups who for years fought lending practices that they believed were discriminatory. Banks and thrifts often turned a deaf ear to their pleas, they felt.

“Initially, banks thought it was extortion,” Lopez says.

Now, more institutions are not only paying attention to CRA compliance. “They’re seeing it as good business,” Lopez says, noting that CRA money isn’t a gift and that banks expect to make money from the loans.

But not all agree that the CRA is a good way to help alleviate the shortage of affordable housing. Frederick C. Henderson, a research reporter for Reason magazine, published by the libertarian Reason Foundation in Santa Monica, calls the act “a program that attacks the symptoms and not the causes” of the lack of low-income housing.

“With programs that prevent redlining, the intent is very noble,” Henderson said. “But the problem is, it’s very bad business” because financial institutions are forced to deal with people who have riskier credit records, he contended.

Because no one has done a comprehensive study on the impact of the act, no one knows for sure how much money has been committed to CRA-related lending nationwide or the number of housing units created through compliance with the act.

But it’s not hard to find CRA-related projects. At Pico Union II, for example, Wells Fargo provided a $400,000 construction loan, and Citibank FSB, the California thrift subsidiary of giant Citicorp in New York, provided a $400,000 mortgage loan. At Villa Parke Homes in Pasadena, an apartment complex for nine low-income families, the same institutions provided $300,000 each.

In South-Central Los Angeles, a 130-unit townhouse complex called Westminster Park Plaza--the first major housing construction there since the 1965 Watts riots--received more than $10 million in financing from lenders such as Wells Fargo and the Los Angeles Community Redevelopment Agency. All families are scheduled to move into the townhouses by May 31.

There are examples in other cities, too. In Chicago, Community Investment Corp., a nonprofit mortgage banking firm, has provided $127 million in construction and mortgage loans since 1984 for 7,200 affordable multifamily units.

Still, these projects have made only a dent in the need for low-income housing, community leaders say.

In Los Angeles County, for example, experts expect more than 600,000 new households to arrive in the next five years. Of those, 250,000 will be of low and moderate incomes, says Fred Kahane, president for the Corporate Fund for Housing, a nonprofit housing development group in Culver City.

“We need to supply 50,000 additional units every year to deal with the growth,” he says.

Besides, much of the nation’s federally subsidized housing will lose those subsidies in the future, possibly leaving thousands of people at risk of becoming homeless without affordable alternatives.

The CRA doesn’t mandate that banks set a specific dollar amount to lend in low- and moderate-income communities. Instead, it asks lenders to make investments comparable to their financial strength.

Lenders have resisted making CRA loans because they viewed urban areas, where affordable housing is needed most, as too risky. They feared borrowers would default.

But that hasn’t been the case, some community groups and bankers say.

“People who get in these programs usually are appreciative” and repay their loans, says George A. Yim, a director for Surety Federal Savings Bank in Vallejo.

Also, financial institutions can draw on generous government subsidies, tax credits or reduced interest rates on loans from the government.

Nonetheless, many thrifts have failed to issue mandatory CRA statements that describe their efforts under the act, says James Woods, senior manager of regulatory services of the federal Office of Thrift Supervision.

Some lenders--although committed to CRA lending--don’t like to be pinned down to specific loan amounts. Pledging a specific amount “is a negative approach,” says Jose A. Arce, director of Citibank FSB’s community lending program, which averages $6 million annually in multifamily home loans. “The intent of our program is to do business, and it doesn’t make sense to put a ceiling on how much you can do.”

However, lenders who fail to meet CRA obligations face protests from community groups and denial by regulators of acquisitions, mergers or branch openings.

Last year, for example, the Federal Reserve--one of four regulatory agencies overseeing CRA compliance--rejected Continental Illinois Bank’s application to purchase a small bank in Scottsdale, Ariz., because Continental failed to meet CRA obligations in Chicago, its hometown.

Community activists nationwide also challenge mergers on grounds that the merging institutions haven’t met their CRA obligations. That sometimes results in negotiated settlements.

In June, 1988, San Francisco-based California First Bank promised $84 million in loans over two years to low-income neighborhoods and pledged to increase its recruitment of minorities and women after three coalitions representing 90 community groups planned to protest the Japanese-owned bank’s purchase of Union Bank.

Security Pacific announced its big CRA commitment in April after meetings with community groups since November, 1988. Activists had challenged the bank’s proposal to acquire 20% of Mitsui Manufacturers Bank on grounds that Security Pacific’s CRA lending was insufficient.

But community pressure is not the only reason CRA lending is likely to increase.

Last year’s S&L; bailout law will result in a “marked increase” of affordable housing because more thrifts will become aware of the act and improve their community outreach, says Yacenda of the Federal Home Loan Bank of San Francisco.

The thrift bailout law also helps by creating two new programs under which the Federal Home Loan Bank will subsidize S&Ls;’ single-family and multifamily home loans at below-market rates.

Since 1978, the Federal Home Loan Bank of San Francisco already has provided approximately $2.25 billion to savings institutions in California, Arizona and Nevada in support of their community reinvestment projects, said Lorna Thompson, vice president of communications for the bank.

Another spur to lending will be a new rating system under which CRA-compliance records examined by regulators will be made public after July 1. Lenders will receive an “outstanding,” “satisfactory,” “needs to improve” or “a substantial noncompliance” rating. It will not be retroactive.

Community groups had complained that under the previous rating system, banks received exaggerated grades. In 1986, for example, 99% of all banks received an outstanding or satisfactory rating and 86% of the thrifts received favorable marks, says Frank Wurtzel, senior counsel for Home Savings of America in Irwindale.

The new evaluation system is better, community groups say, because financial institutions will feel more inclined to improve their records. Also, the new system will give activists better access to lenders’ records.

Still, some community leaders say lenders must do more.

“Although (CRA) has been around for about 13 years, it doesn’t seem to have a tremendous impact on the practice of redlining,” says Gilda Haas, spokeswoman for Communities for Accountable Reinvestment, a coalition of 12 community groups. “It doesn’t have teeth.”

Anthony L. Cooper, whose nonprofit Westminster Neighborhood Housing Project built the Westminster project with private investors, agrees. “Since the CRA was created, banks have been giving lip service to meeting CRA obligations,” he says. “We want to see some real investment.”

The City of Los Angeles has commissioned the Western Center on Law and Poverty, a public interest law firm in Los Angeles, to conduct a study of banking services in poor and minority areas. It should be completed in December.

Michelle C. White, the center’s housing specialist, says there have been certain patterns in other cities that show “loan dollars are less available in poor and minority areas.” In August, for example, the Federal Reserve Bank in Boston found that whites were twice as likely as blacks to receive mortgages.

Meanwhile, for those living in CRA housing, the benefits are clear.

“I’m very lucky,” says Luis Briones, a pharmacy technician who also lives in a Pico Union II apartment. “I’ve left friends behind. I wish all of them could move in (to) a place like this.”

“It’s like it’s not real,” says Juana Ramirez. “I never thought I’d get a place like this . . . brand new and cheaper.”