Home Loan Gap : Banks Are Behind S&Ls; in Lending to Minorities

Bank of America, the biggest financial institution in California, granted just 100 home mortgages to blacks in Los Angeles County in 1990. Wells Fargo, the state’s second largest bank, approved a scant 13 home loans to blacks.

In contrast, several major savings and loan associations--Great Western S&L; and Home Savings of America, among them--have found a profitable niche lending to blacks and other minorities in Los Angeles. Although far smaller than the banks, Great Western made 438 loans to blacks in 1990 and Home Savings approved 333.

The disparity in the lending performance of the state’s biggest banks and major S&Ls; emerged from a Times study of Federal Reserve Board records on nearly 200,000 loans processed in 1990 in Los Angeles County. The study also found that blacks in all income levels are more likely to be rejected for home mortgage loans than whites, Asians and Hispanics. Lenders attribute the lending gap to economic issues--such as low income and poor credit--not discrimination.

“We find the statistics appalling,” said Robert Gnaizda, general counsel for the Greenlining Coalition, a statewide organization of community groups active in financial issues. “We were surprised at how the S&Ls; were able to do so much better than the banks.”

S&Ls; have long been the largest players in the home loan industry, so their preeminence as mortgage lenders is not surprising. But their lending records show a willingness to serve minorities much more aggressively than the leading banks.

The biggest banks not only make fewer loans to blacks, they are more likely to reject a black applicant. Wells Fargo approved 31.7% of home mortgage loans sought by blacks and Bank of America 42.4%. Great Western, on the other hand, accepted 63.8% of black applicants.

“It’s obvious the bank needs to do more outreach to minority markets,” admitted Karen Wegmann, Wells Fargo’s executive vice president of the community development group.

“It’s an uphill climb in marketing to minorities,” said Donald A. Mullane, Bank of America’s executive vice president for corporate community development. “We are not thrilled with our performance.”

Even among some of the S&Ls; trumpeting their success in lending to minorities, blacks are less likely than whites to be approved for a home loan. Great Western, for instance, approved 75.5% of home loans requested by whites but 63.8% requested by blacks.

All financial institutions are feeling greater pressure to serve minorities as federal regulators have begun to focus more attention on enforcing the Community Reinvestment Act, which requires lenders to attend to the credit needs of low- and moderate-income citizens.

Minority and community groups have long complained of bias by lenders, but regulators say discrimination is difficult to detect. In an effort to do so, however, the government is now sending separate black and white undercover teams to apply for home mortgages, employing the same investigative techniques long used to uncover discrimination in rental housing.

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The issue of community lending practices has gained greater impetus during the current consolidation of the troubled banking industry. Community groups have used the CRA to extract large loan commitments for minorities in exchange for dropping opposition to major mergers.

The merger of San Francisco-based Bank of America and Los Angeles-based Security Pacific was opposed by Communities for Accountable Reinvestment, a coalition of Los Angeles groups, saying the banks failed to make enough loans to minority and low-income customers.

In a strategic move to defuse criticism, Bank of America announced an unprecedented goal of making $12 billion in loans over 10 years for housing and other activities in low-income and minority neighborhoods. The merger, completed in April, created the nation’s second-largest bank, with nearly $200 billion in assets.

Making home loans to minorities is relatively unusual for Bank of America, which has an overwhelmingly white customer base. During 1990, its home mortgage customers in Los Angeles included 100 blacks, 429 Hispanics, 526 Asians and 2,532 whites.

Although it was the third-biggest mortgage lender in the county, the bank ranked a distant 16th in South Los Angeles, with 52 loans, according to Dataquick, a database company that provides information on property records. The area, which has a large minority population, is generally bounded on the north by the Santa Monica Freeway, on the south by Century Boulevard, on the west by Fairfax and La Cienega boulevards and on the east by Alameda Street and Slauson and South Central avenues.

Bank of America “sees bigger loans and whiter people as central to its strategic plan,” said Gilda Haas, organizer of Communities for Accountable Reinvestment.

Not true, countered Mullane. “We have set up an aggressive program to penetrate the market in lower-income areas,” he said. “We have made significant progress compared with other commercial banks and we expect it to continue.”

Bank of America’s new tools to penetrate the minority market range from the financial (a special bounty to agents for each new loan they bring in from South Los Angeles) to the symbolic (replacing a white man with a black on an advertising billboard at Central Avenue and 50th Street).

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Normally a loan applicant at Bank of America is reviewed just once after a rejection. With minority applicants, the documents are now reviewed three times--at the local level, by a supervisor and at headquarters in San Francisco.

The effort is showing some results. Last year, as real estate activity slowed, the bank made 48 loans in South Los Angeles, ranking it 11th in market share, according to Dataquick. With the new policies in force, Bank of America made 61 loans in the first six months of this year, making it the fourth most active lender in the largely minority area.

“We’re nipping at the heels of the thrifts in a market they owned three years ago,” Mullane said. “We’ve cranked up the engine. We want to make sure we get an application before Great Western does.”

Wells Fargo appears to have made less progress in expanding its minority activity.

The San Francisco-based bank ranked 20th among all lenders in Los Angeles County in 1990. It had 13 blacks, 28 Hispanics, 58 Asians and 509 whites among its home mortgage customers. Records from Dataquick disclose just seven mortgage loans in South Los Angeles.

In 1991, Wells Fargo made five home purchase loans in South Los Angeles, and three in the first half of this year, putting it in 43rd place among lenders in that community.

Wegmann admitted that the bank is getting too few applications from minority group members and said, “we need to position Wells in the marketplace so we are a financial institution attractive to minorities, a place they want to do business.”

The bank has hired a new crew of special roving lending officers to call on real estate agents and mortgage brokers in minority neighborhoods. It also has a new marketing program aimed at Hispanics and is developing special programs to attract blacks and Asians.

Another new policy calls for a senior lending officer to review the file whenever a minority group member has been rejected for a loan. “We want to take another look at it to see if there is a way to approve it,” Wegmann said.

The banks’ efforts are looked at smugly by the rival thrift industry, which says it has been doing such things for years. The S&Ls; bask in their performance compared to banks, which are moving more heavily into home lending after suffering big losses in commercial real estate and other high-risk investments of the last decade.

“Our guys understand lending in minority areas,” said Jay Janis, president of the California League of Savings Institutions. “It can be a very good business if done properly. I don’t think the banks understand the business. Thrifts are lenders for all seasons, we don’t care what the cycle is.”

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Great Western is by far the biggest lender to minorities, with 438 home purchase loans to blacks, 5,171 to Hispanics, 1,353 to Asians and 3,360 to whites during 1990, the most recent year with full records available from the Federal Reserve Board.

“This is something we have targeted long before it was the fashionable thing to do,” Great Western Chairman James Montgomery said. “We tend to finance shelter more than expensive homes. We felt we could do a good job of inner city lending if we were there with people who are part of the community, who know the community.”

In the heavily black and Hispanic sections making up much of South Los Angeles, Great Western had 656 loans and a 16.2% market share in 1990, according to Dataquick. It led again last year, with 348 loans, but market share had been clipped to 11.6%, with the aggressive emergence of American Savings, a thrift that targeted minority markets, particularly Hispanics, in the last three years.

“Someone else might call it a high-risk area, but we know the communities,” Montgomery said. If Great Western tried to capture business in the high-priced West Side of Los Angeles, “we would have difficulty,” he said. “We have not been there before and the brokers do not know us.”

Similar skepticism by mortgage brokers, realtors and residents confronts the banks in minority neighborhoods, where they are often viewed as aloof and unreliable strangers. Banks “ignored our community for years,” forcing many people to go to high-cost mortgage companies to get home loans, complained Robin Cannon, president of Concerned Citizens of South-Central Los Angeles.

The big banks’ treatment of the area is not the result of racism, said a black banker, Wayne-Kent A. Bradshaw, president and chief executive of Family Savings Bank. Instead, “it’s the way lenders are conditioned,” he said.

“You need as part of the solution a more sensitized lending perspective, one that understands that when you have a black community at the lowest rung of the economic ladder--the last ones hired and the first ones fired--that there is going to be much less likelihood of having the kind of pristine credit background that secondary market and major institutions require.”

The lenders’ traditionally strict rules on credit and employment history and debt levels won’t work in these markets, said realtor Wayne Pharr. Banks “don’t seem to have the latitude that mortgage brokers and S&Ls; have in working with buyers. Their requirements seem to be a little bit more strict,” he said. “You need better, cleaner credit. We’ve never been able to crack that ice.”

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Too often, “the people responsible for credit have no interface with minority borrowers,” said Carlton Jenkins, managing director of Founders National Bank, a black-owned institution based in South Los Angeles. “In our case, our lending people are right out front.

“Large banks maintain these centralized credit functions,” he said. “You walk into a bank branch and you deal with a loan rep, who is not empowered to do anything. They are paperwork gatherers. They send the package down to this mysterious person at a central loan processing center, who reviews it through a boilerplate set of parameters. And if it doesn’t work, they send back a message saying it doesn’t work.”

His bank is concentrating on business lending, and refers home loan customers to the other black-owned institutions, Family Savings and Broadway Savings. Jenkins said Founders is working with a major thrift to develop a home loan he calls a “realistic loan” for people in South Los Angeles.

Banks should recognize that minority group members are good risks, he emphasized.

“In the black community, your car and your house are important,” said Jenkins. “These are the things you treasure. It took you so long to get them, relative to repayment these are the things you want to preserve. “

In contrast to the sometimes tentative efforts by big banks to get minority customers, American Savings has demonstrated how an aggressive approach can carve out a big share of this market. The thrift has targeted minority customers since it was acquired by billionaire Robert Bass in 1988 from the federal government after its parent firm became insolvent.

American opened offices in the Crenshaw Mall and on Whittier Boulevard in East Los Angeles. “We felt if you are going to get inner city loans, you need to locate in the inner city,” said John Nunn, Jr., the thrift’s senior vice president for community outreach and urban development.

The thrift, strong in urban areas in Northern California, was penetrating a new market in Los Angeles. Banks had an intimidating and unapproachable image for many of the blue-collar residents of the neighborhood, Nunn said.

“Merely opening an office and opening your doors do not necessarily bring you clients,” he said. American began hosting evening seminars on buying a home, qualifying for loans and curing credit problems.

The number changed dramatically--in 1988, American made 19 loans in South Los Angeles, putting it in 39th place among lenders in the neighborhoods. By 1990, with the new programs fully in place, the loan tally jumped to 226, putting American into third place among all lenders.

Activity increased again to 285 loans last year, and Nunn predicted a doubling of loan volume this year. It is a booming business in an otherwise gloomy California real estate market.

“In these areas the real estate values remained unchanged, making these safer loans,” he said. “You did not have the violent ups and downs of the California market in recent years. This is the entry-level market.”

How the Study Was Done

The Los Angeles Times reviewed more than 3.4 million home purchase, home improvement and refinance loan applications reported by more than 8,400 U.S. lending institutions in 1990 to the Federal Reserve Board. Although the Fed tallied 6.4 million applications, the Times study was limited to applications with complete information on an applicant’s ethnic group, income and amount of loan. Excluded were incomplete forms, as well as applications for loans totaling more than five times a person’s annual income, loans on dwellings with more than four units and loans resold by lenders.

In Los Angeles County, 190,894 loan applications were analyzed, including 84,165 for home purchase, 19,854 applications for home improvement and 86,875 applications for refinance.

Reasons for rejecting loan applications were reported for all lenders except the Bank of America, which failed to report this information in 1990.

The Times’ preferred style is “Latino” rather than “Hispanic.” However, this special study of mortgage lending uses the definitions and terminology employed by the Federal Reserve in collecting information from banks. Because of different collection methods, it is hard to compare information about Hispanics gathered by the Fed and the Census. The Fed report for banks requires loan applicants to choose from these categories: white, Hispanic, black and Asian. The Census Bureau, in contrast, first asks people to designate themselves as white, black, Asian or Pacific Islander, American Indian, or other. A second question asks if the person is of Hispanic origin. Therefore, the Census data for Hispanics will include some whites and some blacks who also list themselves as Hispanic.

MORTGAGE LENDING RECORDS

Mortgage approval rates Banks, savings and loan associations and mortgage companies in Los Angeles County have widelyvarying records in making home loans to different racial and ethnic groups. Blacks are turned down more often for loans than other groups, and have the hardest time getting a loan with state’s biggest banks. Here are the home mortgage loan approval rates of the county’s 25 largest mortgage lenders in 1990:

Black//white differential Institution Asian Black Hispanic White (% points) Great Western Bank 75.8 63.8% 73.8% 75.5% -11.7 Home Savings of America 68.4% 61.2% 68.8% 67.5% -6.3 Bank of America 63.9% 42.4% 50.1% 62.5% -20.1 American Savings Bank 78.6% 70.0% 83.2% 73.1% -3.1 HomeFed Bank* 79.9% 66.0% 71.9% 78.4% -12.4 California Federal Bank 57.7% 45.9% 50.4% 57.2% -11.3 Glendale Federal Bank 73.5% 82.2% 70.4% 70.8% +11.4 Citibank 83.0% 82.1% 79.5% 79.2% +2.9 Coast Federal Bank 82.4% 65.9% 68.0% 75.3% -9.4 Plaza S&L; 81.3% 74.5% 74.0% 84.9% -10.4 World Savings & Loan 69.0% 60.5% 62.2% 58.9% +1.6 First Federal Bank of Calif. 62.8% 58.5% 63.6% 66.5% -8.0 Directors Mortgage Loan 75.4% 71.7% 75.0% 78.6% -6.9 Great American Bank* 75.0% 73.2% 69.9% 69.8% +3.4 Western Federal S&L; 66.8% 48.6% 61.1% 66.0% -17.4 Guardian Saving & Loan* 79.6% 72.5% 74.8% 72.4% +0.1 Wells Fargo Bank 52.7% 31.7% 35.0% 59.6% -27.9 United Savings Bank 69.4% 47.1% 62.0% 63.8% -16.7

Note: Based on applications for home purchase loans not exceeding five times the applicant’s annual household income. *Failed insolvent and was seized by the federal government.

Two major lenders, Countrywide Funding and Security Pacific Bank, are not listed because software problems prevented reporting to the Federal Reserve data collection system. Source: Times analysis of 1990 data reported by lending institutions to the Federal Reserve. *

Mortgage loans by institution Thrift institutions dominate the home loan business in Los Angeles County. This is particularly true in serving minorities, where the state’s biggest banks made few mortgage loans in 1990. Institutions are ranked by total home mortgage loans.

Institution Total loans Asian Black Hispanic White Great Western Bank 10,322 1,353 438 5,171 3,360 Home Savings of America 6,419 697 333 2,038 3,351 Bank of America 3,587 526 100 429 2,532 American Savings Bank 2,356 220 63 1,365 708 HomeFed Bank* 2,088 238 62 340 1,448 California Federal Bank 2,014 241 61 141 1,571 Glendale Federal Bank 1,957 205 60 302 1,390 Citibank 1,876 338 92 202 1,244 Coast Federal Bank 1,749 356 87 263 1,043 Plaza S&L; 1,612 834 38 291 449 World Savings & Loan 1,549 593 49 268 639 First Federal Bank of Calif. 1,401 98 69 551 683 Directors Mortgage Loan 1,345 132 66 429 718 Great American Bank* 1,333 240 109 424 560 Western Federal S&L; 1,25) 346 51 320 539 Guardian Savings & Loan* 1,001 152 222 354 273 Wells Fargo Bank 608 58 13 28 509 United Savings Bank 587 179 8 98 302

Note: Based on applications for home purchase loans not exceeding five times the applicant’s annual household income. *Became insolvent and was seized by the federal government.

Two major lenders, Countrywide Funding and Security Pacific Bank, are not included because software problems prevented reporting to the Federal Reserve data collection system.

Source: Times analysis of 1990 data reported by lending institutions to the Federal Reserve.

Rankings by Institution *

Ranked by percentage of total home mortgage loans to Asians

% of No. of total loans loans Approval Institution to Asians to Asians rate Plaza S&L; 48.0% 834 81.3% World Savings & Loan 30.4 593 69.0 United Savings Bank 29.1 179 69.4 Western Federal S&L; 25.0 346 66.8 Coast Federal Bank 20.2 356 82.4 Citibank 17.5 338 83.0 Great American Bank 15.4 240 75.0 Guardian Savings & Loan* 11.9 152 79.6 Bank of America 13.9 526 63.9 Great Western Bank 12.9 1,353 75.8 California Federal Bank 11.8 241 57.7 HomeFed Bank* 11.1 238 79.9 Home Savings of America 10.8 697 68.4 Glendale Federal Bank 10.4 205 73.5 Directors Mortgage Loan 9.3 132 75.4 American Savings Bank 8.7 220 78.6 Wells Fargo Bank 9.1 58 52.7 First Federal Bank of Calif. 6.8 98 62.8

*Became insolvent and was seized by the federal government. *Ranked by percentage of total home mortgage loans to blacks

% of No. of total loans loans Approval Institution to blacks to blacks rate Guardian Savings & Loan* 17.4% 222 72.5% Great American Bank 7.0 109 73.2 Home Savings of America 5.2 333 61.2 Coast Federal Bank 4.9 87 65.9 Citibank 4.8 92 82.1 First Federal Bank of Calif. 4.8 69 58.5 Directors Mortgage Loan 4.7 66 71.7 Great Western Bank 4.2 438 63.8 Western Federal S&L; 3.7 51 48.6 Glendale Federal Bank 3.1 60 82.2 California Federal Bank 3.0 61 45.9 HomeFed Bank* 2.9 62 66.0 Bank of America 2.6 100 42.4 World Savings & Loan 2.5 49 60.5 American Savings Bank 2.5 63 70.0 Plaza S&L; 2.2 38 74.5 Wells Fargo Bank 2.1 13 31.7 United Savings Bank 1.3 8 47.1

*Became insolvent and was seized by the federal government.* Ranked by percentage of total home mortgage loans to Hispanics

% of total No. of loans to loans to Approval Institution Hispanics Hispanics rate American Savings Bank 53.8% 1,365 83.2% Great Western Bank 49.5 5,171 73.8 First Federal Bank of Calif. 38.3 551 63.6 Home Savings of America 31.7 2,038 68.8 Directors Mortgage Loan 30.3 429 75.0 Guardian Savings & Loan* 27.7 354 74.8 Great American Bank 27.2 424 69.9 Western Federal S&L; 23.1 320 61.1 Plaza S&L; 16.8 291 74.0 United Savings Bank 15.9 98 62.0 HomeFed Bank* 15.9 340 71.9 Glendale Federal Bank 15.4 302 70.4 Coast Federal Bank 15.0 263 68.0 World Savings & Loan 13.7 268 62.2 Bank of America 11.4 429 50.1 Citibank 10.5 202 79.5 California Federal Bank 6.9 141 50.4 Wells Fargo Bank 4.4 28 35.0

*Became insolvent and was seized by the federal government.* Ranked by percentage of total home mortgage loans to whites

% of total No. of loans to loans to Approval Institution whites whites rate Wells Fargo Bank 80.3% 509 59.6% California Federal Bank 76.7 1,571 57.2 Glendale Federal Bank 70.8 1,390 70.8 HomeFed Bank* 67.7 1,448 78.4 Bank of America 67.0 2,532 62.5 Citibank 64.6 1,244 79.2 Coast Federal Bank 59.3 1,043 75.3 Home Savings of America 52.1 3,351 67.5 Directors Mortgage Loan 50.7 718 78.6 United Savings Bank 49.1 302 63.8 First Federal Bank of Calif. 47.5 683 66.5 Western Federal S&L; 38.9 539 66.0 Great American Bank 36.0 560 69.8 World Savings & Loan 32.8 639 58.9 Great Western Bank 32.2 3,360 75.5 American Savings Bank 27.9 708 73.1 Plaza S&L; 25.9 449 84.9 Guardian Savings & Loan* 21.3 273 72.4

*Became insolvent and was seized by the federal government. Note: Based on applications for home purchase loans not exceeding five times the applicant’s annual household income. Source: Times analysis of 1990 data reported by lending institutions to the Federal Reserve.

Home Mortgage Lending in South Central Los Angeles

1991 1991 Market 1990 1990 Loans Value Share Loans Value 1 Great Western Bank 348 $40.9 11.6% 656 $74.4 2 American Savings Bank 285 35.8 10.2 226 27.5 3 Home Savings of Amer. 131 17.5 5.0 318 39.9 4 Great American Bank* 81 10.7 3.0 134 17.7 5 Funders Mortgage 77 9.4 2.7 59 6.7 6 Mortgage Network 77 9.3 2.7 97 10.5 7 American City Mortgage 71 8.8 2.5 85 9.4 8 Plaza S&L; 61 7.2 2.1 55 6.5 9 Trent Financial 59 7.1 2.0 78 8.8 10 First Nationwide 47 7.0 2.0 41 5.7 11 Bank of America 48 6.8 1.9 52 6.2 12 Directors Mtg. 49 6.1 1.7 32 3.7 13 First Federal Bank of Calif. 44 6.1 1.7 116 14.3 14 Glendale Federal Bank 48 6.0 1.7 51 6.3 15 Western Federal S&L; 34 5.7 1.6 48 6.1 16 Coast Federal Bank 43 5.4 1.5 50 6.7 17 Imco Realty 31 4.8 1.4 31 3.5 18 World Savings and Loan 35 4.7 1.3 26 3.0 19 Western Bank 27 4.2 1.2 5 .5 20 National Pacific Mtg. 33 4.2 1.2 34 3.8 21 Homelenders Lawn 33 4.0 1.1 59 6.6 22 Sunwest Mtg. 24 3.5 1.0 25 2.9 23 Wellington Fund 28 3.5 1.0 44 5.0 24 Performance Mtg. 27 3.4 1.0 12 1.5 25 Security Pacific** 25 3.2 0.9 19 3.0 Other 1,012 225.3 36.4 1,564 179.7 Total 2,778 351.5 100*** 3,917 459.7

Market Share 1 Great Western Bank 16.2% 2 American Savings Bank 6.0 3 Home Savings of Amer. 8.7 4 Great American Bank* 3.9 5 Funders Mortgage 1.5 6 Mortgage Network 2.3 7 American City Mortgage 2.0 8 Plaza S&L; 1.4 9 Trent Financial 1.9 10 First Nationwide 1.2 11 Bank of America 1.3 12 Directors Mtg. 0.8 13 First Federal Bank of Calif. 3.1 14 Glendale Federal Bank 1.4 15 Western Federal S&L; 1.3 16 Coast Federal Bank 1.5 17 Imco Realty 0.8 18 World Savings and Loan 0.7 19 Western Bank 0.1 20 National Pacific Mtg. 0.8 21 Homelenders Lawn 1.4 22 Sunwest Mtg. 0.6 23 Wellington Fund 1.1 24 Performance Mtg. 0.3 25 Security Pacific** 0.7 Other 39.9 Total 100.0***

The region includes the area generally bounded on the north by the Santa Monica Freeway, the south by Century Blvd., the west by Fairfax and La Cienega Blvds, and the east by Alameda St., Slauson Ave., and S. Central Ave.Notes:* Failed and was seized by the federal government. **Merged with Bank of America. ***Subtotals do not add to 100% due to rounding Source: Dataquick Information Systems