Inner-City Interest : Politically Pressured Lenders Tour South-Central

With government pressure and community scrutiny mounting, lending practices by banks and savings and loans in low-income neighborhoods is a hot political topic these days.

Hence the hoopla surrounding a tour of South-Central Los Angeles on Wednesday by three busloads of lenders, appraisers, brokers and other real estate professionals. Housing advocates used the tour to call attention to the neglected market, while executives from American Savings Bank, Great Western Bank and Home Savings lauded the wisdom--and profits--of their own inner-city loan programs.

“I can tell you it’s good business,” said tour participant Mario Antoci, chairman of Irvine-based American Savings, which leads major state lenders in the percentage of its mortgages devoted to low-income households. “Problem loans in South-Central are one-third to one-half the rate in West Los Angeles, a much more affluent area.”

But while some institutions such as American Savings appear to have strong track records, the Clinton Administration has served notice that it believes too many lenders are paying no more than lip service to low-income lending. Institutions are rejecting too many loans from minority applicants, and not enough of their total loan portfolios are dedicated to low-income neighborhoods, Clinton officials have said.

The President has asked regulators to demand tougher compliance with the Community Reinvestment Act, the 1977 law that requires lenders to serve the mortgage needs of areas where they collect deposits.

Apart from bad public relations, poor compliance could cause regulators to frown on--or quash--proposed mergers, new branch openings or other moves, said Stephen Cross, deputy controller for compliance at the Office of the Comptroller of the Currency. Serious abuses could result in lawsuits brought by federal prosecutors.

Why are lenders feeling the heat now? Clinton made enforcement of community banking laws a campaign pledge. And census data and lending statistics that recently became available to the public make lenders’ loan practices much easier to track. Also, lenders’ annual CRA reviews recently became open to public inspection.

That has made many lenders nervous because, as it stands now, the CRA law is vague, leaving bankers unsure about what standards they will be held accountable to. The law imposes no objective standards, for example, on how much money a bank or S&L; should lend to which sort of applicant.

With an eye to putting teeth in the CRA, the Administration has set up a series of six nationwide hearings, including one scheduled for Sept. 8 in Los Angeles. The purpose is to find better ways of enforcing the CRA rules while stopping short of “telling bankers which loans to make and which ones not to make,” said the federal government’s Cross.

The hearings will be conducted by the four regulatory agencies charged with enforcing the act: the comptroller’s office, the Federal Deposit Insurance Corp., the Federal Reserve Board and the Office of Thrift Supervision. At the hearings, regulators will hear housing officials, consumer activists and lenders discuss how enforcement should be toughened.

There were additional signs Wednesday of the heightened priority that some lenders are giving low-income lending. Bank of America and Chemical Bank each announced increased volumes of minority and low-income mortgage lending.

Lori Gay of Neighborhood Housing Services, a nonprofit housing developer and advocate that organized Wednesday’s bus tour, singled out American Savings, Great Western and Home Savings for praise in low-income lending.

“They are doing a good job. They can always do better,” Gay said. “There are some lenders that aren’t doing a good job. Why? Some say it’s discrimination, some say it’s perception. We say it’s ignorance, so what we’re doing today with this tour is educating and sensitizing people.”

Tad Lowery, president of Cenfed Bank in Pasadena, said he was on the tour to “see if there are ways we can get involved” in more low-income mortgage lending. Cenfed has no branches in the area but is considering making funds available through mortgage brokers, he said.

American Savings’ Antoci said the key to his company’s record in South-Central is a local presence and flexible loan underwriting standards.

American next year will be the first banking institution to open an office in Watts since the 1965 riots, sharing the building with Founders Bank.

Antoci said his institution’s flexibility involves requiring “less credit history” from an applicant, and sometimes accepting rental and utility payment performance as criteria when nothing more substantial is available. Several “extended” families often appear on American’s loan applications.

“You also need loan agents who can exercise good judgment. Traditional standards don’t work,” Antoci said.

In 1991, the last year for which data is available, American made 25% of its new loans to low-income families.

A low-income family is one living in a neighborhood that has a median household income of 80% or less of the metropolitan area as a whole, according to the U.S. Census.

Low-Income Lenders

Here are California’s Top 10 mortgage lenders in total loan volume (in billions of dollars) ranked by the ratio of those loans made to low-income neighborhoods. 1. American Savings Bank: Low-income mortgages: $0.77 (24.7% of total loans) Total mortgage loans: $3.13

2. Western Federal Savings: Low-income mortgages: $0.41 (19.3%) Total mortgage loans: $2.02

3. Great Western Bank: Low-income mortgages: $1.06 (19.2%) Total mortgage loans: $5.50

4. Home Savings of America: Low-income mortgages: $1.27 (17.7%) Total mortgage loans: $7.22

5. Glendale Federal Bank: Low-income mortgages: $0.30 (16%) Total mortgage loans: $1.89

6. World Savings: Low-income mortgages: $0.66 (15.3%) Total mortgage loans: $4.33

7. Directors Mortgage: Low-income mortgages: $0.39 (12.8%) Total mortgage loans: $3.12

8. Imco Realty Services: Low-income mortgages: $0.34 (11.3%) Total mortgage loans: $3.05

9. Bank of America: Low-income mortgages: $0.67 (8.1%) Total mortgage loans: $8.24

10. Countrywide Funding: Low-income mortgages: $0.65 (8.1%) Total mortgage loans: $8

Statewide average: 12.6%

The rankings, which include savings and loans, banks and mortgage bankers, are as of 1991, the most recent year for which data is available.

Source: Smith Banking Consultants (using Home Mortgage Disclosure Act data)